Now the ISA season is over, is that it for clients investing into their ISA pots till next year? Does the flurry of activity pre-5 April to encourage investors to use their ISA allowance before they lose it? Does it risk savers missing out on the opportunities presented by pensions?
And will any manage to save anything anyway for the foreseeable future?
Providers and advisers have a role to play in encouraging them to and in promoting pensions as much as ISAs. The two should go hand in hand.
But it is not going to be easy.
Many people lost their jobs as a result of the pandemic and the age-old (excuse the expression) scandal of the over fifties being overlooked for jobs is still evident.
And of course, the effects of the pandemic lockdown on the economy has been superseded by Russia embarking on a war with Ukraine.
Cost of living rises
The Office for Budget Responsibility (OBR) heralds worse to come for the consumer.
‘The conflict also has major repercussions for the global economy, whose recovery from the worst of the pandemic was already being buffeted by Omicron, supply bottlenecks, and rising inflation,’ it says. ‘A fortnight into the invasion, gas and oil prices peaked over 200 and 50% above their end-2021 levels respectively. Prices have since fallen back but remain well above historical averages.
‘As a net energy importer with a high degree of dependence on gas and oil to meet its energy needs, higher global energy prices will weigh heavily on a UK economy that has only just recovered its pre-pandemic level. Petrol prices are already up a fifth since our October forecast and household energy bills are set to jump by 54% in April.’
The OBR predicts that if wholesale energy prices remain as high as markets expect, energy bills are set to rise around another 40% in October, pushing inflation to a 40-year high of 8.7% in the fourth quarter of 2022.
As it points out: ‘Higher inflation will erode real incomes and consumption, cutting GDP growth this year from 6.0 per cent in our October forecast to 3.8 per cent. With inflation outpacing growth in nominal earnings and net taxes due to rise in April, real livings standards are set to fall by 2.2 per cent in 2022-23 – the largest financial year fall on record – and not recover their pre-pandemic level until 2024-25.’
It is imperative individuals save and invest where they can and as much as they can and as early as they can. As Dan Brocklebank, director UK, Orbis Investments has recently highlighted, the majority of people underestimate the power of compounding interest. Orbis carried out research asking folk if they invested £100 on a child’s behalf into the stock market via a Junior ISA, assuming 8% return pa what would they have when the child hit 18. Only 6.6% were able to calculate near the correct amount of £400. The average ‘guesstimate’ was £246. This shows a clear need for financial service providers to educate clients – and potential clients – about the power of compounding over longer terms.
Dan said: “Compound growth may not be intuitive to most. As long as people underestimate the power of compounding, they are likely to miss out on the long-term benefits of investing in markets. Investing in global equities has been shown to outperform cash over the long term, and the ‘magic’ of compounding plays a part in this.”