NISAs about to get even nicer
By Ian Cruickshank | Wed 29 Oct 14
By Ian Cruickshank | Wed 29 Oct 14
Once Britain's favourite savings option, the Isa in its early years was seen as the 'everyman' savings product, providing decent returns and with a tax free incentive. This of course changed dramatically post-recession with the Bank Rate remaining at an all-time low as the UK economy stalled stuttered and coughed back to life. Statistics from HMRC show that the number of adult Isas subscribed to has fallen in line with returns, from 14.6 million in 2012/13 to 13.5 million in 2013/14.
Who would be a saver! Just when you think rates might raise, nearly £5bn was deposited in Isas in one month in July by eager savers, more gloomy economic growth figures emerge and the prospect of earning anything over 2 per cent pa seems like a distant dream.
Peer-to-Peer to save the ISA?
And then things got interesting! Savers began to demand more choice in a market of stagnant rates: an option between low yield cash and high risk stocks and shares. The government listened and announced it was entering into a two-month consultation period to work out the best way to allow people to enjoy tax free returns on peer-to-peer (P2P) lending.
With eight out of 10 people using Isas putting their money into cash Isas, where they are suffering from poor rates, this is an unprecedented opportunity to breathe fresh life into a failing sector. By expanding the horizons of new Isas to include P2P platforms, everyone from cash-strapped retirees and young people struggling to get on the property ladder can get the help they need. Recent research by RateSetter found that nearly half (44%) think that ISA reform will help them to save more. Four in ten (39%) agree that including P2P lending in ISAs will reinvigorate the ISA market.
Awareness Gap and the Big Opportunity:
The NISA-ability of P2P is likely to be most popular among pre- and post-retirees in search of much-needed income and savvy, urban young professionals looking to consolidate their future. Savings security should not be of concern if they place their cash with a reputable P2P player. Therefore, this marks a sea-change in the way people save money in the UK.
But what about the rest? Most people, two thirds (65%) are not aware that P2P will soon be included in an ISA. The government along with the P2P sector still have some way to go on educating the general public on NISA options that are likely to become available next year. It is therefore unsurprising that the greatest opportunity for growth in the sector comes from those who have not considered using P2P in the past or have never heard of it - the majority of the population at 88%.
What's on the table?
Allowing P2P companies to become ISA managers is a key milestone in the development of the sector that will change the savings industry in the UK for the better. Should the government choose the 'Third ISA' category it would open up a whole new alternative to polarised cash or investment options for savers - providing that missing link between low yields and high risk.
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