The recent UK Budget increase in the maximum annual contribution to tax efficient New Individual Savings Accounts (Nisa) to £15,000 should be good for investors in structured deposits and investments.
Last week, Skandia announced that they are adding a cash Isa to their platform and increasing the rate they pay on cash deposits. These changes followed the proposals in the Budget to increase the threshold for all Isas to £15,000, thereby putting cash Isas and stocks & shares Isas on a level playing field. Which should be positive for savers in structured deposits and investments.
Prior to the Budget, people could only put £5,760 in a cash Isa and £11,520 in a stocks & shares Isa in 2014-15. Protected investments could only be held in a stocks & shares Isa if they had a term of greater than five years or were less than 95% protected. This was to deter providers from offering cash-like products in the wrapper with the higher threshold. It also made it more difficult to hold open ended protected funds with no fixed term and the potential to secure more than 95% in an Isa.
These rules were one of the drivers for providers issuing structured products with terms of five years or more in the UK, in addition to historically low interest rates.
All of this may change as a result of the Budget. Protected investments no longer need to have terms of five years or more to be held in an Isa. This could lead to shorter dated solutions being launched and potentially lower minimum protection levels e.g. 80%-95%.
Demand for structured deposits has been higher because they are backed by the FCSC up to £85,000. They are not currently covered by the RDR or MiFid although that is expected to change over time. The increase in the cash Isa limit to £15,000 should increase demand for structured deposits.
They can be held on the same platform and potentially in the same Isa, depending on whether providers offer both cash and stocks & shares Isas on the same platform or merge their Isas in the future. It remains to be seen whether Skandia will offer structured deposits in their cash Isas.
As has already been identified in StructuredRetailProducts.com, the Budget could also be good news for investors in open-ended structured protected funds. They can now be more easily held in an Isa following the changes to the rules. The new flexibility around annuities could lead to a boost in demand for variable annuities in the future as pensioners look to outperform the traditional annuities they are no longer required to hold. Open-ended structured funds are also better suited to some fund platforms than fixed term securities.