UK Retail Investment Product Market In Crisis

by Robert Lee, Tax News.com, London

25 March 2003

The market for UK retail investment products such as Individual Savings Accounts (ISAs), Personal Equity Plans (PEPs), venture-capital trusts, and pension plans has undergone a dramatic slump in recent months, and the market has virtually run dry during what is traditionally its busiest period - the end of the tax year.

Various factors are to blame, say those who sell these products, but the most pervasive appears to be the public's low confidence in the equities sector after three years of declining stock markets globally. The ISA market in particular has fared very badly, and in a rather gloomy assessment of the market place from Peter Hargreaves of Hargreaves and Lansdown, a leading UK firm in ISA sales, it emerges that the situation is "far worse than everyone is saying."

To illustrate the point, figures for the UK show that investors cashed in more ISAs and PEPs than they bought. In January, for instance, ISA sales were £343 million, though £187 million were cashed in. Additionally, £311 million of PEPs were also cashed in. Underlining the overall pessimism surrounding the market place, Gordon Davidson of Jupiter Unit Trust Managers told the Scotland on Sunday news service that take-up is extremely unlikely to recover any time soon, at least not until the stock market recovers to the point at which many people entered. "Until their most recent investments get back to the price they paid, most won't come back," he explained.

Another factor which could well kill off the market in ISAs and associated products is Chancellor Gordon Brown's plans to tax the interest and dividends on these previously tax-free investment vehicles. In a bid to avert this move, the chief executive of the Investment Managers' Association, Richards Saunders, is planning to write to the Chancellor this week to urge him to rethink his plans. He is also attempting to lobby support from other financial institutions who are likely to be hit by the decision, and is seeking a last minute meeting with Brown to persuade him to reverse the measure.

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