This is the problem we have. We are a nation that has de-risked and see that as prudent.
I do not want to criticise “individuals”, they have good advocates in Martin Lewis and others, and are right to be prudent when the world is full of predation.
But I wonder if individuals are best off taking decisions on their own , for themselves.
We used to have collective investment that helped out people as varied as miners and postal workers. Only those in the public sector get collective workplace pensions (ok I miss out Royal Mail , USS, Railpen and a few more) but my point is simple.
Left to our own devices, we seek to be prudent and de-risk our finances to a point we have no chance to benefit from the growth of the nation and of the organisations that drive that growth.
That’s not what money in a cash account is good at doing.
We grab our invested funds as soon as we can and cash them out, swapping growth for de-risked prudent cash. Except it’s not prudent or risk-free. That’s because to meet our needs in later life we need our money to grow to beat inflation and last as long as we do!
Let’s not blame individuals for being over-prudent. Instead let’s ask how we can make it easier for us all to invest for growth by encouraging each other to go for growth.
Trust-based DC pensions with 12 or more members according to TPR have increased from £205bn to £249bn over the past year. If there are said to be around 30m members, then the average pot is less than £10,000. The number of “active” members is only around 11m.
At the end of the 2023/24 tax year, the total market value of adult ISA holdings in the UK according to the latest HMRC data was £872 bn, representing a one-year increase from £725.9 bn in 2022/23.
In that 2023–24 tax year, Cash ISAs were significantly more popular than Stocks and Shares ISAs, with roughly two-thirds (66%) of all new subscriptions directed to cash.
In value terms, however, the risk-takers/growth-seekers in Stocks & Shares ISAs are about one-and-a-half times higher than Cash ISAS.
HMRC suggest there are only about
6,000 ISA “millionaires” (savers who’ve invested their full annual allowances and allocated to growth rather than cash).
The Mail on Sunday, however, suggests the number of “millionaires” may be nearer 20,000, given relative FTSE 100 performance in recent months.
HMRC also suggest the top 25 ISA holders have accumulated investment of £274.5m, an average of £11m each. The dispersion may be quite wide, however, as one commentator has suggested the top “millionaire” may have achieved £29m.
HMRC report the average ISA account is worth only £33,000, with those over 65 holding around £63,000. There seem to be twice as as many savers (23m?) as “active” members in trust-based DC.
I think the fundamental issue is that people do not tend to think of ISAa as a long term savings plan. Instead I am sure many regard them as another bank account, perhaps a rainy day account, with a better rate of interest. They are “invested” against a mental target of future use e.g. next car or house purchase, with a largely short term time horizon e.g. next year or the year after.
Underlying investments in Stocks and Shares ISAs have to be listed on a recognised exchange and therefore emotionally are regarded as speculative investments, irrespective of whether they include gilts, bonds, investment trusts etc. The tendency is to think of Stocks and Shares ISAs (or formerly Personal Equity Plans) as being a speculative investment only subscribed to when sufficient funds have been secured in the “liquid” cash ISAs.
I leave the reader to draw their own conclusions about the comparison to pension scheme investments and particularly the regulatory approach to defined benefits.
With regard to Derek’s point about average pot sizes, the ISA Millionaires are likely to hold multiple ISA Accounts. With cash ISAs the FSCS compensation limit and fixed term interest deals (usually for a maximum of 3 years) are the major factors influencing consumer decision making. There are no small pot issues with cash ISAs and management charges in stocks and shares ISA can be relatively easily selected against (“the penny drops”).
“The fundamental issue is that people do not tend to think….”
The longevity economy is not a distant future but an immediate reality. By fostering collaboration across the public and private sectors, stakeholders can transition from reactive measures to sustainable models that enable people of all ages to flourish.
Outliers exist, and the ideas that produced extraordinary results need to be nurtured, copied, and embraced, not punished with knee-jerk tax and policy changes.