Investors wooed by tax perks

Research shows that there are 312,000 elite investors in the UK.

Stocks and shares are now held by 11.8 million people in Britain, many more than save with Tessas, Peps or unit and investment trusts. This, however, is geared to past privatisation issues, and many who hold BT shares would probably never have done so if BT had not been state-owned in the past. The habit of investing in shares directly is still in its infancy in the UK.

Relatively new arrivals on the investment scene have been the Tessas and Peps: opportunities to save cash or invest in shares with major tax-saving incentives. And saving on tax is something that appeals to many potential savers.

This has led to there being 5.7 million Tessa investors and 3.9 million Pep investors, with 1.6 million people holding both. This compares with direct investments in unit trusts of just 3.2 million and in investment trusts of 2.4 million. Why use these vehicles when more tax efficient methods exist?

Who are these serious savers? More than half of all Tessa savers (57 per cent) are aged over 55, and more than a third (34 per cent) are over 65. There are similar figures for Peps: over half of all Peps are owned by the over 55s and a third by the over-65s.

Chart two shows that the core market is the 55 to 74 age group, those coming up to, those entering and those already in retirement.

As the lump sums appear, as insurances mature, as a prospective low pension encourages savings, correspondingly tax-free savings and investments become more appealing. When retirement passes and old age approaches, so the holdings of Tessas and Peps decline, with the over-75s either spending their savings or passing them on tax free to their children and dependents.

The “greyness” of the savings and investment market explains why the link with income is less apparent than might be expected.

Many of the older age groups are on pensions, and hence their family incomes are less than in their high earning years. There is still, however, a strong link with affluence. One in five adults with family incomes in excess of 40,000 owns a Pep; and one in five owns a Tessa – and one in ten own both. In fact, nearly as many of these more affluent homes own both a Tessa and a Pep as own shares in either a unit trust (15 per cent) or an investment trust (11 per cent).

Who are the elite savers and investors? This analysis looked at those individuals owning at least four investment products: those holding at least one Tessa, Pep, unit trust and investment trust.

We estimate that there are 312,000 such individuals in the UK. And 86 per cent of this group also own stocks and shares direct. Of these, 138,000 are aged over 65, and a further 92,000 are between 55 and 64. These “oldies” are today’s serious savers and investors.

An intriguing growth area is in offshore investment, which ranges from building society accounts in Jersey or the Isle of Man, to investments in the Seychelles, Bermuda and the Cayman Islands.

Around 350,000 individuals claim to have such investments. Again, the majority is in the grey market. About 125,000 investors are over 65, of pensionable age, and only a minority – about 65,000 are under 35. Offshore investment, like Tessas and Peps is the province of the old.

Which banks appear to be most successful with these very affluent elderly British investors? A quarter have an account with NatWest; a fifth with Barclays, 15 per cent with Lloyds and 15 per cent with Midland. But many hold more than one account. The average number of bank accounts held in the UK by this group is 1.4.

Many also have accounts at building societies, with the Halifax being in the lead.

The top bank for Tessas and Pep holders is also NatWest. Somehow NatWest has established itself in the lead among the older, wealthier sections of society.

What of the future? The good news for the sellers of products is that the current holders are still in the market for more. One in five Tessa owners is in the market for a Pep; one in five Pep owners is in the market for a unit trust; and many unit trust holders are now looking at Peps.

This is a developing market. These investors and savers are on the lookout for additional tax-saving investments, and will repay careful and selective marketing.

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