OpinionMay 15 2013

Glimmer of hope amid savings torpor

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Great Britain, still trying to release itself from the shackles of recession, seems to be in serious danger of losing the savings habit.

That is the only conclusion that can be drawn from the latest statistics compiled by the Investment Management Association and research conducted by the Equity Release Council.

According to the IMA, net sales of fund-based Isas (unit trusts and open-ended investment companies) fell off a cliff in the tax year just gone – down from £2.2bn in the tax year ending 5 April 2012 to £1.1bn. Even the usual last-minute surge in Isa sales driven by the imminent end of the tax year and investors’ loss of any unused 2012/2013 Isa allowance (an impressive £347m of sales were made in the last five days) failed to hide the fact that investors’ appetite for Isas has waned big time.

This collapse in demand for tax-friendly Isas was surprising given the buoyant state of stock markets – rising markets tend to be good for Isa fund sales. And while Daniel Godfrey, IMA chief executive, was not prepared to provide an explanation for the disappointing sales, preferring instead to opine on the benefits of monthly saving and good old pound cost averaging, Hargreaves Lansdown’s Adrian Lowcock was. He said: “Although stock markets are performing many households are still suffering from the weak economic growth, high unemployment and rising taxes. Fewer households are therefore able to save at present.”

These figures are even more disappointing for the fact that tax-friendly Isas remain one of the easiest ways of building long-term wealth free from the claws of the taxman. Unlike pensions, they have remained largely untouched by the greedy hand of government. Indeed, with the annual allowance rising again this tax year to £11,520, they should be more appealing than ever. Maybe the investment funds industry should take up Mr Godfrey’s challenge and start promoting direct to the public the long-term benefits of regular Isa investing.

The research by the ERC probably made for more depressing reading. There was not one glimmer of sunshine among its findings – two-thirds of adults were in denial about how they will fund their retirement; 65 per cent were struggling to put money aside; one in five were prepared to save although they expected a more modest lifestyle in later life. Most worryingly, nearly one in 10 adults believed they will have to sell their home to enable them to live comfortably in retirement. All pretty grim stuff.