77% of people don't understand NISAs

The Momentum UK Team 24 June 2014

There’s just one week to go until the new ISA – dubbed the “NISA” – unveiled in this year’s Budget becomes available. But are most people ready to take full advantage of their new tax-free allowance?

Savers should have cause to celebrate next week, as NISAs begin to come onto the market. However, research released this week has revealed concerns that the public may not be particularly well-informed about the new measures.

According to figures from TD Direct Investing, 77% of people have little or no understanding of the new system, with 63% of Brits not planning to use their new allowance of £15,000. Stuart Welch, CEO of the investment company, said:

“The lack of information on the new process from the government has led to serious confusion amongst investors and savers on how this will work. It is truly a shame because people should be encouraged to make the most of the tax efficient wrappers, particularly as we emerge from a five year austerity drive – and people start to think more about planning for their future.”

What makes NISAs different?

From the 1st July you will be able to save up to £15,000 in a tax-free NISA. The main difference between NISAs and the old ISAs is that you will be able to decide exactly how you want to divide your allowance between cash and equities, with the option to keep the full amount in cash if you wish.

You will also be able to switch existing Stocks and Shares ISAs into cash, and can switch money between the two as often as you wish.

Existing ISAs from this tax year will automatically become NISAs – so make sure you don’t go over the £15,000 limit if you’re topping up.

Separate research from Standard Life has revealed attitudes which may be holding some savers back from investing through a Stocks and Shares ISA. According to these figures, just over a quarter (28%) of people who don’t actively invest in equities say they want to have built up enough cash savings to cover their outgoings for three months, before they would consider doing so. The average amount desired in such a “rainy day” fund is £7,499 – just 4% of people said they would be happy to invest in stocks and shares with no cash buffer.

Over a quarter of people who don’t currently invest through a Stocks and Shares ISA (27%) said they wouldn’t invest in equities at all, believing the stock market to be too risky. Over 55s were the most likely group to hold this view (35%).

That being said, there has been a 20% increase in the number of people investing through Stocks and Shares ISAs in the past year. 

Julie Hutchinson from Standard Life said:

“From the start of July, people have a greater opportunity to save into a tax efficient ISA as the limit is increasing substantially to £15,000. That will make it much easier for people to save smart and strike a balance between cash and investments that is right for them. Whether you’re cautious or adventurous, investing offers the chance to outperform interest from the high street banks and potentially generate more growth and income.

“There are also tailored products out there to help people on their first step towards stock market investment, such as risk managed funds. These make investing in funds simpler - all you have to do is choose the fund that most closely matches your attitude to risk.”

Read more about ISAs here