With the Isa celebrating its 20th birthday this year, many a column inch has been dedicated to the success of the product which has helped savers shelter £35billion from the taxman over the last two decades.
But does the tax-wrapper have an age problem? Those celebrating similar birthdays to the Isa are the least likely to have opened one.
In the most recent tax year HMRC publishes data for, 2015–16, just 18.8 per cent of Isa holders were under 35, meanwhile 48 per cent were aged 55 or older.
Compared to a decade ago, the demographic imbalance has shifted dramatically.
The Isa celebrates its 20th birthday this year, with more than £600bn currently deposited into them. In the last financial year, £131,000 a minute was deposited
In 2008–09, adults aged over 54 accounted for just 37 per cent of total Isa holders, while 25 per cent were under 35.
According to financial services firm Scottish Friendly, the share of adults holding an Isa decreased in all age groups between 2009 and 2016 except from those aged 65 and over.
The figures are even starker when you look at investment Isas. Just 5.6 per cent of new stocks and shares Isa subscriptions came from those aged under 35.
The figures go hand-in-hand with concerns that Isa rules have got too complicated in recent years and there are too many on offer.
James Blower, founder of website The Savings Guru, says the Isa is now less attractive to younger savers for exactly that reason. ‘Isas have become hugely more complicated in the past few years with introduction of new versions, changes to the rules, big changes in allowances and, most significantly, the introduction the Personal Savings Allowance.
‘Isas were extremely popular in their first 14 or 15 years because of their simplicity. That’s been eroded.’
The PSA allows basic-rate taxpayers to earn £1,000 of savings interest tax free. This is a slimmer £500 for higher-rate taxpayers.
Financial commentator and founder of the Young Money Blog, Iona Bain, added: ‘Young people are not routinely taught what an Isa is and how they could use one.
‘Personal finance education is patchy and we don’t have a culture in this country of openly discussing personal finance in a healthy, constructive way.’
The share of adults holding an Isa decreased in all age groups between 2009 and 2016 except from those aged 65 and over. But should we worry about the Isa’s youth appeal?
What’s more, she adds: ‘Rates on cash Isas are still abysmal so there’s no real reward for saving into them.
‘But then you’re left with a big leap up to innovative or stocks and shares Isas, which present risk, commitment and the need to take big responsibility.
‘Only a minority of young people would be willing and able to take that on.’
Kevin Brown, savings specialist at Scottish Friendly, says it’s important to consider the state of the fiscal climate over the last decade. ‘Fewer young people may be saving into ISAs than they were 10 years ago but we have to remember how difficult these past few years have been for them.
‘For the best part of a decade, young people have had to deal with slow wage growth, a hike in university fees and a never-ending increase in rents and house prices.
‘When you add all that together, it’s not surprising that many young people have little left each month to put into an Isa.’
James Blower also makes the point that the demographics of the savings market will likely look the same regardless of whether products come with a tax-free wrapper.
He says: ‘The vast majority of savers are over 35.
‘There’s many reasons for this, for example the under 35s are typically buying or have bought their first property so they have more debt, they are not at their earning peak, they have young families – which are expensive – or they are repaying student debt or other debts.’
There is also another especially important caveat. The most recent data from HMRC covers the 2015–16 year, which predates the launch of two Isa products specifically designed for young savers; the Help to Buy and Lifetime Isas.
The Help to Buy Isa was only introduced in December 2015, while the Lifetime Isa was launched just two years ago in April 2017.
Both products come with a government bonus to try and help first-time buyers get on the property ladder, with the Help to Buy Isa being open to first-time buyers aged 16 or over, and Lifetime Isa openings are restricted to those aged 18–39.
While the Help to Buy Isa is being shuttered in November this year, and the cash Lifetime Isa has been taken up by just three providers, there is some data that suggests the products have proven effective, even if it might not make a huge dent in the overall stats.
Indeed, the Office for Budget Responsibility in the Spring Statement slashed the amount it expected the Government to have to pay to Lifetime Isa savers by 2021 in half, which James said suggested the Government had been ‘unsuccessful in their aims’ to encourage young savers ‘to save for their first house purchase or retirement.’
However, according to Skipton Building Society, the first – and for more than 12 months only – provider to introduce a cash Lifetime Isa, 3,641 homes were bought using the Isa in 2018, with savers taking an average of 16 months to save for a home.
It added more than 100,000 Lifetime Isas had been opened with it since the product’s launch.
Tempting younger savers to take the plunge into the world of investing might be a harder battle, but even then ‘robo advisors’ or apps like Moneybox – which invest spare change from online purchases – could potentially provide a pathway for otherwise reticent investors who might not even realise they’ve opened a stocks and shares Isa.
‘I’m not sure that the Isa per se is at fault’, says Iona. ‘The under 25s have less money than older people and do not think about the future as much – that’s just a fact of life.
‘The Isa will become much more relevant to them as they earn and save more. Yes, the landscape may be bigger and more complex now, but it also offers more choice and room to manoeuvre.
‘That, combined with an undoubted appetite for the Help to Buy and Lifetime Isas as well, means I’m not despairing.’
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