Savers in the dark over advantages of tax relief

The third annual Scottish Widows Savings and Investments Report reveals that the vast majority (72%) of people who did not save money in the past 12 months want to start saving for the future. However, only a quarter (24%) of people plan to take out an ISA in the next tax year, with a further 16% uncertain whether they will or not. Of those that do not plan to take advantage of their tax-free allowance, 43% state the reason for this as not being able to afford to save, but one in ten say that it is because they don't know anything about them.

The research shows this lack of knowledge about ISAs covers a range of issues. 11% of people who are not planning on taking out an ISA in the new tax year say that they do not know anything about them and 4% say that they are too risky an investment. Furthermore, 42% of people saving for ‘long-term' or both ‘short-term' and ‘long-term' chose Cash ISAs as their long-term savings and investment vehicles.

Perhaps most worrying is the lack of knowledge of those aged between 18 and 24, as 27% of this age group who are not planning to take out an ISA in the new tax year stated that they did not know anything about ISAs; a worrying trend as research from Scottish Widows has shown that over half (56%) of parents with children over 16 have given or loaned money to their adult children or grandchildren. Of these, half (49%) of all parents with children over 16 who have already given money to their children expect to do so again in the future, showing no signs of savings education in the future.

Gordon Greig, head of Savings and Investments at Scottish Widows comments: "It's clear from these results that there is a serious need for greater financial education when it comes to ISAs. Everyone aged 18 and over in the UK has an ISA allowance, and should be taking advantage of this tax-free product. Although saving is a habit that we would always encourage, the number of people choosing Cash ISAs as "long-term" vehicles shows that there is need for a greater understanding of the differences between short term and long term saving products, particularly in the current environment of low interest rates. It is also worrying that the level of awareness and knowledge of ISAs is so low amongst 18-24 year olds. This is the very group that we should be working with to encourage a savings culture now and for the future."

However, the research has also showed that most people have good intentions to save, even if this is not always possible through lack of funds, or other reasons. 37% of people stated that they are more likely to save compared with a year ago, and the same number stated they are saving more compared to 5 years ago. 77% of people intended to save last year, but in total, a large number (39%) of people didn't manage to save any money at all. Of those who intended to save in the last year, (regardless of whether they did or not,) on average £3,305 was the amount people aimed to put by - and of those who succeeded in saving, on average people saved £3466.58.

Benefits for ISA savers:

The research clearly shows that those who already save in ISAs believe the benefits to be obvious. Over half (56%) of those who have a Cash or Equity ISA stated that the reason they save into an ISA is because of the relative transparency - as there is no tax and you can see exactly where your money is. Ease of access was also an important factor, with 39% of respondents saying this.

Gordon Greig, head of Savings and Investments at Scottish Widows continues: "Those who have taken out ISAs are well aware of the benefits these savings vehicles bring. The freedom from personal tax, both income and tax on capital gains is a clear benefit - particularly for those who are starting to save. A quarter of those who managed to save last year saved between £1,000-£3,000 (25%) which is well within the ISA allowance. Everyone should be taking advantage of their ISA allowance in 2009 - it's tax-free, simple, easily accessible and a great place to start saving for the future, even if you haven't managed this in the past."