Ahead of the forthcoming ISA consultation, the Treasury is planning to hold roundtables to discuss ISAs and how to boost investing, and encouraging more investment, not shutting down choice, is key.
HL Savings & Resilience Barometer: HL Savings and Resilience Barometer | January 2025 | HL
The April 2025 survey was with 2,000 people by Opinium for HL
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“As the UK’s largest retail investment platform, we have a wealth of experience in supporting people moving their excess cash savings into investment. The ISA is a popular product which already allows people to move their money between cash and investment easily.
Consultation is an opportunity to further improve the ISA range, but changes to the framework should be focused on simplicity, rather than cutting allowances and adding complexity.
Boosting the UK’s retail investment culture is essential to helping build financial resilience. It is clear that people can find financial freedom faster by investing over the medium and longer term. However, not everyone feels confident to save and invest, and removing choice won’t drive these people to invest if they are not ready. To drive a culture, people have to want to invest. The game changer will be improving the support we can give people, to help them choose investment through the planned targeted support regulations
Improved risk warnings will also make a substantial difference. At HL we recently updated these to include that investment over 5 years increases the chances of positive returns compared to cash, which has helped our clients understand when investment is right for them.
Why people don’t invest
When we surveyed non-investors about why they don’t invest, the most common answer was that they don’t have enough money – mentioned by 39% of people. It’s one reason why the system needs to support both saving and investing, so everyone has the support they need to find the solutions that are right for them.
The Cash ISA is a vital tool to enable people to save a robust emergency savings net without having to worry about tax. Everyone should hold some cash, but not too much, and getting the balance right is always tricky. However, reducing the tax incentives for the cash ISA isn’t the answer, and could expose diligent savers to tax.
However, not all of these people genuinely don’t have the money they need for investment. A separate piece of research, using the HL Savings & Resilience Barometer found that 12.1 million households have savings to cover at least 3 months’ worth of essential spending (the minimum recommended for an emergency savings safety net), and aren’t in arrears with their borrowing. These people are usually in a position to invest, but less than half (47%) of them do so.
Risk
The second most common reason not to invest is that 24% of people aren’t happy with taking a risk. There’s no denying that there’s risk involved, but the way we tend to assess long-term risk is faulty. People can over-estimate the risk that investments will lose money over the long term. They may also underestimate the risk their cash ISA will lose value after inflation.
Part of the issue is the risk warnings issued to people who are considering investing. Last year, HL conducted trials of alternative risk warnings in collaboration with the University of Nottingham and the University of Warwick. This work showed more balanced risk warnings, which highlight the higher returns that can be achieved over time from mainstream investing increased the likelihood of people investing.
For clients brand new to HL this increased Stocks & Shares ISA account openings by almost 9%. By adding the fact that over 91% of 10-year periods, stocks and shares have outperformed cash, it increased openings by 23%. More work on risk warnings and developing how they are used could open the door to more investment.
Lack of understanding
A range of answers indicated that people were put off by a lack of understanding. 7% said they didn’t know enough about investing, 5% said they weren’t confident they’d make the right choice, and 5% said they’ll never understand it. Together, this makes up the third most common reason for not investing.
The change in the pipeline which will be transformational is the work around the advice guidance boundary. This is examining how better to guide people to good financial decisions and outcomes without having to pay for advice. This should mean businesses can offer more targeted support for retail investors, guiding them to get the asset mix that it right for people in their circumstances.
This will be a game changer to help people build the confidence to invest for the longer term. Encouraging more people with excess cash savings to invest will ultimately fuel both economic growth and enable more households to secure their financial future.
This will also help the 5% who said they didn’t invest, because investment wasn’t for people like them. It enables them to be shown just how investment has specifically benefited people like them.”
