A pensions “fire sale” could be behind the sharp fall in fund flows into Isas, industry figures have said, as dara reveals a 40 per cent slump compared with last year (Pensions Advice).
Investment Association figures revealed net inflows for Isa funds dropped by more that 42 per cent to £1.5bn in the 2015/2016.
Mark Polson, principal at research and consultancy firm research and consultancy firm the Lang Cat, said the figures could point to savers shunning Isas in favour of piling extra cash into their pensions in the run-up to Match Budget amid fears the Chancellor would scrap pension tax relief.
For advised clients with constrained budgets, the choice would be to allocate money to a pension over an investment Isa to make the most of the higher rate tax relief.
Non-advised Isa customers with concerns over pensions and general market uncertainty may have opted for a cash Isa instead, Mr Polson said:
“It’s going to be a bit of a blood bath and a year to forget,” he stated, suggesting that the fall in funds sales was unlikely to be an ongoing trend given the popularity of Isas and the “noise” around new products such as the Innovative Finance Isa and recently announced Lifetime Isa.
Abraham Okusanya, principal at research firm FinalytiQ agreed that the fall in flows was a short-term reaction to pre-budget pension rumours.
“The fear created by a “buy-while-stock-last” attitude to pensions, meant advisers gave priority to funding pensions rather than Isas,” he said.
Ben Yearsley, investment director at the Wealth Club, also pointed out that, with the FTSE down more than 10 per cent over the last year, people were put off investing, despite falling markets offering buying opportunities.
(FTadviser, May, 2016)
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