ISA sales hit record levels after allowance increase

Fund managers say this could be a record year for ISA sales following the rise in investors' annual allowance last October.

The government increased ISA (individual savings account) allowances for the over-50s from £7,200 to £10,200 a year ago and extended this to the under 50s in April. Since then net sales of stocks and shares ISAs have more than doubled to £4.6 billion, according to the Investment Management Association, which represents fund managers. 

IMA chief executive Richard Saunders said: 'The inflows we have seen since October last year are the highest since ISAs were first launched. There is a good chance that 2010 could be the best year ever for ISAs.'

Fund managers and financial advisers were encouraged by the increase in investment but said other factors, such as the introduction of the 50% tax rate for people earning more than £150,000, were also responsible.

Catherine Penney, a vice-president at Barclays Stockbrokers, said the firm had seen a 12% rise in equity ISA sales since April. 'We attribute this to the introduction of the 50% tax rate - for people earning more than £150,000 per year - which makes those affected more conscious of tax efficiency as well as the increased limit which makes ISA more beneficial to investors, as a couple can remove £20,400 from tax each year.' 

Tom Stevenson, investment director at Fidelity Investment Managers, said: ‘There’s a search for income. Interest rates are so low and the expectation is that they are going to stay low. That’s what’s encouraging a lot of the sales and the move into funds is because people are realising that may be they have to take greater risks to achieve what they aspire to.'

Stevenson reiterated Fidelity's concern that increasing ISA allowances only benefited the well off who were fully invested. 'While we support increasing the ISA limit we felt there might be more effective ways to encourage new saving.’

A survey by the IMA showed 47% of investors would save even more if the ISA allowance were raised further, with 44% backing the idea of a lifetime tax-free ISA allowance.

Saunders added: 'Our research shows that people are positive about incentives to save – with around half of existing investors saying they would invest more if the annual ISA allowance were raised.'

The latest IMA figures show that a total of £96.7 billion is invested in equity ISAs, up from £86.4 billion a year ago.