Brewin Dolphin defends ISAs as account numbers fall to lowest in nearly two decades

Wealth manager Brewin Dolphin has insisted that ISAs remain important despite the number of ISA accounts in the UK dropping to a near-two-decade low.

Recent figures published by HMRC showed the number of ISA accounts fell from 11.1 million in 2016-17 to 10.8 million in 2017-18, the lowest number of accounts since 1999-2000.

There was a decline of 697,000 cash ISA accounts, a decrease of around 8.2 per cent on the previous year.

The number of cash ISAs peaked at 12.2 million a decade ago in the run-up to the financial crisis and has fallen by 36.4 per cent since then.

Douglas Cameron, divisional director of financial planning at Brewin Dolphin in Glasgow, said: “It’s no surprise that people are abandoning Cash ISAs – why bother when you’re highly unlikely to be breaching the £1,000 tax-free interest threshold? You would need to have a whopping £100,000 in the bank earning a relatively hard-to-come-by rate of one per cent to breach that limit.

“With a stocks and shares ISA, while you could get back less than you invested, there’s the potential for inflation-busting returns: from a long-term balanced portfolio, you could reasonably have expected a return of six to eight per cent per annum in recent years. You can also spread risk, by including fixed-income products and alternative assets; place your income-producing assets in the tax-efficient ISA wrapper; and shield your investments from capital gains.

“The trend towards stocks and shares ISAs could also be explained by another subtle change: the ability to flip between a stocks and shares and cash ISA. It’s always been possible to switch from cash to stocks and shares, but doing it the other way is a recent development and has removed a level of risk for investors.”

A total of 166,000 lifetime ISAs (LISAs) were opened during the 2017-18 tax year – worth £517 million – short of a government target of 200,000.

Interest in innovative finance ISAs remained muted, with the number of accounts at 31,000, up on just 5,000 the previous year.

Mr Cameron added: “The LISA has a lack of focus – that’s its big problem. However, the 25 per cent government bonus, even before any growth or interest, shouldn’t necessarily be ignored. People are confused about the product – what are they supposed to use it for? Purchasing a house, which is already covered by Help to Buy, or their retirement? The product needs to be simplified and aimed fairly and squarely at a particular set of people. If that happens, it could help breathe new life into ISA products and boost interest.

“While some people will think the latest numbers suggest time is being called on the ISA, we firmly believe it still has a big role to play in people’s personal finances. Although many feel jaded when it comes to ISAs – particularly after a decade of low interest rates – often, they’ve been misinformed about their usefulness. We have some wealthy married-couple clients who, by almost religiously using their combined £40,000 annual allowance, have become ISA millionaires over the last 15-20 years. There’s still life in the ISA yet.”