As The ISA Turns 25, Stocks & Shares Investors Are Nearly Millionaires

These
are
the
conclusions
of
a
new
Morningstar
report
marking
the
25th
anniversary
of
the
launch
of
the
ISA,
which,
from
1999
onwards,
permitted
UK
savers
to
put
money
into
a
tax-advantageous
savings
“wrapper”
that
can
be
used
to
invest
in
cash,
stocks
and
shares,
funds,
investment
trusts,
innovative
companies,
or
exchange-traded
funds
(ETFs).

Of
the
two
basic
vehicles,
cash
ISAs
are
without
doubt
the
more
popular
of
the
two,
however,
with
their
stocks
&
shares
counterparts
in
second
place.

For
every
stocks
and
shares
ISA
opened
by
a
saver,
getting
on
for
twice
as
many
cash
ISAs
are
saved
into.
Overall,
half
the
average
annual
subscription
of
£8,690
goes
to
stocks
and
shares
products.
Of
these
investors,
only
15%
of
savers
invest
their
full
£20,000
allowance.

This
is
backed
up
by
provisional
government
figures
for
the
2021/2022
tax
year,
which
show
the
number
of
cash
ISA
subscriptions
for
that
year
at
7,139,
with
stocks
and
shares
wrappers
attracting
just
3,934.

Regardless,
ISA
holders
have,
collectively,
built
up
a
colossal
pile
of
wealth.
By
April
2022,
government
figures
show
the
total
market
value
of
all
adult
ISAs
as
being
£741.6
billion,
with
around
11.8
million
adult
ISA
subscriptions
in
the
2021/22
tax
year.

This
is
in
part
due
to
the
growth
of
the
ISA
product
suite.
Savers
now
have
access
to

Lifetime
ISA
for
home
ownership
or
retirement
savings,
an
Innovative
Companies
ISA,
and,
just
this
month,
the
arrival
of
the
British
ISA
–
whose
generous
allowance
compels
investors
to
buy
shares
in
UK-listed
companies.

The
range
of
options
is
now
so
broad
that
certain
investment
industry
commentators
are
criticising
the
government
for
overcomplicating
a
product
that
was
originally
designed
to
be
simple,
and
–
in
theory –
should
not
require
regulated
financial
advice
to
open.

It’s
not
all
bad,
however.
According
to
report
author
Andy
Pettit,
Morningstar’s
director
of
policy
research,
the
addition
of
a
British
ISA
to
the
ISA
product
suite
could
help
make
the
case
for
stocks
and
shares
investing
to
people
keener
on
cash
products
than
equity
ones.

“The
UK
ISA
might
actually
serve
as
a
positive
step
by
incentivising
more
people
to
direct
their
ISA
allowance
toward
stocks
and
shares,”
he
says.

“While
incremental
additions
and
amendments
to
the
ISA
framework
may
not
be
implemented
in
the
most
elegant
way,
£5,000
is
being
added
to
the
ISA
allowance,
providing
further
help
for
investors
to
build
wealth.”

When
Were
ISAs
Launched
and
Why?

As
the
world
geared
up
for
a
new
millennium,
1999
brought
the
creation
of
the
euro
single
market
currency,
the
ill-fated
Millennium
Dome
exhibit,
a
solar
eclipse,
and
the
Y2K
bug
into
the
popular
consciousness.

In
business
Napster
was
“revolutionising”
music,
BAE
Systems
(BA.)
was
formed
via
a
merger
of
British
Aerospace
and
Marconi
Electronic
Systems,
and,
in
the
UK,
the
new
minimum
wage
forced
firms
large
and
small
to
pay
a
minimum
hourly
rate.

Then
came
the
individual
savings
account,
or
ISA.

Introduced
by
then-chancellor
Gordon
Brown
on
6
April
of
that
year,
the
ISA
was
initially
designed
to
replace
pre-existing
Personal
Equity
Plans
(PEPs).
But
not
everyone
was
happy.
One
member
of
parliament
declared
the
product
a
“colossal
failure”
months
after
launch.

Nobody
is
saying
that
now.
Today,
ISAs
are
firmly
part
of
the
popular
consciousness
–
so
much
so
that
politicians
know
new
products
will
immediately
attract
the
attention
of
savers.

How
Are
ISAs
Taxed?

ISAs
were
designed
to
be
a
tax-advantageous
way
of
saving,
and
in
theory
this
is
absolutely
the
case.
ISA
owners
pay
neither
income,
dividend,
nor
capital
gains
tax
on
the
proceeds
–
so
gains
made
in
either
cash
or
stocks
&
shares
ISAs
are
untouched
by
the
taxman.

This
is
naturally
provided
the
saver
sticks
to
a
series
of
allowances,
which
have
become
more
complex
with
the
addition
of
products
to
the
overall
suite
of
options.

The
current
ISA
allowance
remains
£20,000;
a
sum
that
can
be
spread
across
different
types
of
cash
or
stocks
&
shares
ISA
accounts.

However,
certain
products
–
like
the
Lifetime
ISA
and
newly-launched
British
ISA
–
have
different
allowances.
The
Lifetime
ISA
is
subject
to
a
£4,000
allowance
per
tax
year
and
is
subject
to
a
host
of
other
rules
around
withdrawals
and
payments,
while
its
patriotically-branded
counterpart
hands
savers
a
£5,000
allowance
if
they
invest
in
UK
companies.

How
Easy
is
it
to
Become
an
ISA
Millionaire?

“ISA
millionaire”
status
is
the
subject
of
many
column
inches
in
the
personal
finance
press.

Indeed,
it’s
proven
a
popular
topic
of
discussion,
not
least
because
of
flexibilities
introduced
elsewhere.
In
2014,
for
instance,
new
rules
were
announced
allowing
people
with
private
pension
savings
to
invest
and
withdraw
their
money
more
flexibly.

As
such,
savers
have
been
encouraged
think
more
comprehensively
about
how
they
can
maximise
the
potential
of
their
personal
financial
portfolios,
including
their
ISAs.
Since
then,
this
has
become
even
more
important
with
the
onset
of
a
period
of
inflation,
in
which
price
rises
eat
away
at
the
value
of
our
money.
  

Nevertheless,
for
most
savers,
reaching
the
£1
million
mark
in
an
ISA
pot
alone
will
feel
something
of
a
pipe
dream.
Does
achieving
it
via
equity
exposure
mean
savers
need
more
help?
At
a
point
where
there
is
a
degree
of
fatigue
on
the
part
of
the
retirement
savings
industry
in
solving
the
so-called
“advice
gap”,
Pettit
says
“perseverance”
is
needed.

“Better-off
investors
who
maxed
out
their
ISA
allowance
into
global
equities,
as
represented
by
the
Morningstar
Global
Index,
could
be
sitting
on
close
to
a
£1
million
investment
pool
free
from
capital
and
income
taxes,
reflecting
the
potential
of
the
ISA,”
he
says.

“Regulatory
perseverance
to
find
practical
solutions
to
getting
more
advice
to
more
people
plays
a
vital
role
in
maximising
the
ISAs
potential
to
best
meet
personal
financial
goals.”

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