Plus some good reads from around the web.

Fans of The Accumulator’s articles on passive investing know how hard it can be for UK investors to find information about the various cost components of index tracking funds.

Fund managers can get equally frustrated – at least when it comes to the stats that make them look good!

Now the company behind the fundamental-tracking Munro Fund has created its own resource of statistics to tackle the problem head-on.

Its new website of tracker stats is called Smart-Beta.

The company explains its motivation as follows:

There are now a number of funds, usually described as index or tracker funds, that provide investors with a mechanism to capture the beta of the market in a simple and inexpensive manner. There are also a few funds that seek to deliver the market returns in a different , and arguably better, way than using market capitalisation to determine portfolio construction. It is becoming common practice to describe these as smart-beta funds.

Because these funds use a mix of structures, typically ETFs and OEICS it is hard to find data to make comparisons in one place. It is also difficult to find all the data you need to make a full and proper comparison. It is not much use identifying a low cost fund if the minimum investment is a much larger amount than you wish to invest.

This site has been set up to help address this problem.

The information on Smart-Beta is culled from Bloomberg. Fundamental Tracking Investment Management Limited, the company behind the Munro Fund and Smart-Beta, says data on the site is not comprehensive, and should only be used as a starting point for further research.

It does add though that “every effort has been made to ensure it’s up-to-date”.

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I read recently that money is the new sex. But given that sex and money have been mixing it for thousands of years – and often getting together to, um, bury the hatchet – I think that’s a pretty bold claim.

What next? Food is the new water? Oxygen is the new carbon dioxide?1

Or maybe money is like sex because these days everyone is talking about it, but nobody is getting any.

Journalistic tropes aside, one thing money and sex have in common is that we’re fascinated by other people’s mattresses – what happens on top of them, and what they’ve got stashed underneath.

Which is all a long-winded way of saying I’ve come across some interesting statistics about the average savings in an ISA, broken down by salary.

And you know you can’t resist a peek!

MPs in ISA savings revelation

This tangle of juicy ISA statistics comes to us courtesy of Hansard, the official record of UK Parliamentary debates.

Written questions were asked about the average savings in an ISA by salary – I’d guess to make political hay when it was ‘revealed’ that those on lower earnings don’t usually have as much saved as those on higher salaries.

But one person’s axe to grind is another person’s prurient look behind the curtain of people’s ISA savings habits.

The first piece of data shows how many thousands of people in different income brackets (left hand column) have ISA savings pots in six bands (to the right), running from £15,000 to £500,000.

Note that these figures – apparently the latest the Exchequer has to hand – are from 2008 / 2009:

Note: Bands rounded up to nearest the £1,000. Source: Hansard

For example, the most populous intersection shows that 715,000 people earning £10,000 to £20,000 have savings of £15,000 to £20,000.

Unfortunately, no details were asked or given about those with average ISA savings amounts below £15,000.

What about those with more than £500,000 tucked into an ISA?

This was asked, naturally enough! The original data has two further columns – one band for £500,000 to £1 million and then another for savings over £1 million. But none contain any data.

According to the Exchequer:

Information in respect of ISA market values above £500,000 is not separately available because of the limitations of the statistical sample from which the analysis has been drawn. However, fewer than 500 individuals are estimated to be represented in each of the separate ISA market value categories taking all the income ranges together.

I think this is saying the Exchequer estimates that fewer than 1,000 people have ISA savings of more than £500,000 (so fewer than 500 in the £500,000 to £1 million band, and the same for £1 million and over).

However an alternative interpretation I’ve read is that it means there are fewer than 500 for each of the seven income bands on the left.

I don’t think this is right, but it is feasible. Someone might earn less than £5,000 but have a rich spouse, and so eventually have a big ISA! Or they might have invested well and decided to live off their ISA savings, and no longer be earning. Or perhaps they have trust funds or an inheritance.

Some combination of those will also explain the 3,000-odd people who are earning less than £5,000 but have more than £200,000 in ISA savings.

How to make a million in an ISA

ISAs were introduced in April 1999, so to achieve a portfolio of £500,000 or more in ISA investments by 2009 would have been quite a feat.

However before ISAs there were similar savings accounts called PEPs, launched in 1986. In 2008, old PEPs automatically became stocks and shares ISAs, and I presume these stats refer to ISA savings that were originally wrapped up in PEPs, as well as pure-bred ISAs.

According to an FT article about ISA millionaires, as of 2012:

An investor who made full use of the maximum Pep or Isa allowance each year for the past 25 years would have invested £192,480 in total, which would have grown to almost £500,000 based on an average annual return of 7 per cent. With average returns of 11.7 per cent, they could have broken the £1m mark.

A nearly 12% annual return looks fanciful to today’s battle-weary investors’ eyes. But it will be interesting to see the same statistics in 2020, say, if we get the good spell in the markets that mean reversion indicates could be due after the lousy past decade.

I’d expect to see a lot more ISA millionaires by then.

Individual Savings Account market values: 2008-09

The second table reveals that most people aren’t very serious about tax-free savings, regardless of what they earn:

Note: Salary band rounded to nearest £1,000. Source: Hansard

To me these numbers are dispiriting. Not just because even this preselected group of super-savers has managed to save so little (people without ISAs aren’t even counted here, remember) but also because ISAs are perhaps the best and most flexible tax break going, and savers aren’t fully exploiting them.

A six-figure salary and yet a mere median £13,800 tucked away in an ISA beyond the taxman’s grasp? Easy come easy go I guess.

There’s no distinction drawn here between cash and stocks and shares ISAs. I suspect the comparatively few hardy souls who dare to open a shares ISA are skewing the median ISA savings figure upwards to produce the average figure on the right. (According to research from Halifax bank, the average amount in its customer’s cash ISAs is up 23% this year to £8,949).

The dip in ISA savings for those earning £20-30K compared to the bracket below is interesting. Anyone got an explanation? Please share it in the comments.

Are you keeping up with the ISA savvy Jones?

So, how was it for you, darling? Did the earth move when you saw your own ISA savings compared to the average? Or was it an anticlimax?

Personally I’m just even more frustrated that I didn’t start fully using my annual ISA allowance until around 2003. I had plenty of cash saved by then, but I kept it in ordinary savings accounts.

What an idiot I was, given that unused limits cannot be carried forward to future years. Only this week I’ve had to do more tedious capital gains tax calculations on non-ISA protected shareholdings, in order to defuse future tax liabilities. I’m jealous of those with 25 years of PEP and ISA allocations to play with!

As I’ve said before, it’s worth using stocks and shares ISAs just to save paperwork, let alone the tax advantages. And who knows, maybe one day you could be swelling the ranks of the ISA half-a-millionaires-or-more?

That’s what I’m aiming for – the less-than-a-thousand club!

It sure beats the Mile High Club. The food is better, for a start.

1. Seriously, your lungs do not know to breath without a dash of CO2. [↩]

Some good reads from around the Web.

When I were a lad, budgets were budgets. Grown men would tremble before The Chancellor’s red box, wondering if he was about to tax their golf clubs out of existence, or cry “Loadsamoney!” and do the opposite.

In 1988 Nigel Lawson slashed the top rate of income tax from 60% to 40%, where it stayed for more than 20 years. In the 1970s Denis Healey soaked the rich with unapologetic redistribution – at least until he was forced to call in the IMF to bail out Britain.

And now? Making the headlines from this week’s budget was a 5% cut in what everyone agreed at the time was a temporary tax rate, a tiny freeze on the largesse the State shows to pensioners, and a welcome but for most relatively tiny hike in the personal allowance.

Put it through a budget impact calculator, and it isn’t likely to add up to more than few takeaway curries for the majority of Monevator readers.

Not so much class warfare as inter-generational tiddlywinks!

That’s not to say there aren’t real losers. The poorest are seeing their income fall under this government, but that’s because of benefit cuts.

Unfortunately we’re in a situation where many (including me) are less than confident those benefits were always well-targeted and helpful.

Instinctively I prefer the new emphasis on rewarding low-paid work, and removing the disincentives – with an appropriate safety net for the fallen and generous provision for the relatively few who truly can’t help themselves. (I don’t begrudge almost any amount of money being spent on quadriplegics or a soldier whose hands are blown off defusing a bomb).

At the other end of the ‘need’ scale, I’m losing out because as a childless person I’m still going to have to subsidise middle-class children in a world that has too many people in it, thanks to the fiddly new child benefit rules.

If you’re on the other side of that divide – you have kids – then make sure you read up on the new ‘cliff edge’, and calculate if it’s worth taking action.

But away from the stamp duty dodging enclaves of Chelsea and the estates without earners, it’s smokers, drinkers, drivers, and (thanks to a change in what’s classed as VAT-rated hot food) the eaters of Gregg’s pies who will feel most pain.

This ratcheting up of duty is a brilliant example of compound interest in action.

What about the investors?

The budget didn’t have much of consequence in it for private investors.

There were a few tweaks to VCT and EIS rules that won’t be relevant to many readers, although I have some of the former.

There were no big changes to mainstream concerns like capital gains tax, dividends, ISAs, and pensions.

The annual scare stories about the abolition of higher-rate tax relief also came to nothing – as usual.

Every year I get emails from worried readers about a supposed imminent end to higher rate tax relief, along with press releases from financial firms saying all higher rate taxpayers should put their life savings (/£50,000) into pensions before higher rate relief is abolished.

Why don’t I write about it, they ask? Because it might happen one day, but I don’t expect it under this government. I expect to keep hearing about how it’s coming!

(If you are lucky enough to be paying the 50p tax rate, then it could be worth getting tax relief at 50% while you can).

A few of the non-personal finance details might have consequences for investors:

• Speeding up planning could be good for housebuilders.

• Lower corporation taxes may mean more money retained for reinvestment or dividends.

• There were some new reliefs for North Sea oil companies.

• There is also tax relief for TV productions and video games and animation studios, which might conceivably help some investments. (ITV shares rose slightly on the news).

The crackdown on stamp duty avoidance on £1-2 million+ properties also has an investing dimension.

Could it finally cause a wobble at the top of the London property market? Prime London has some of the signs of bubble conditions, so I wouldn’t rule it out.

2012 budget roundups from around the web

As for what we did get, here’s some useful Budget 2012 roundups and tools:

• BBC: Budget 2012 at a glance
• BBC: Complete budget 2012 archive
• BBC budget calculator with sensible emphasis on booze and drink
• The Guardian’s top 10 changes
• Telegraph’s take on the winners and losers
• Even The Guardian can see 20-somethings are worse off than Grannies
• Budget 2012: A big splash with a little cash – The Economist
• Institute of Fiscal Studies’ number crunching slides [PDF]
• A crackly discussion from accountants Deloitte [Podcast]
• HM Treasury’s archive of Budget 2012 documents
• Inexact estimates justify 50p to 45p rate cut – Stumbling & Mumbling

Finally, I was disappointed that we didn’t see some Keynesian response to very high youth unemployment, which isn’t even producing the great music of the 1980s as a by-product.

Getting them into debt at university is an unpleasant stop-gap solution!

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