The ISA-UIOLI Impetus

FatherAbraham

As we near the end of the financial year, I find myself bombarded with irritating promotional messages from ISA providers, urging me to use it or lose it (UIOLI) with my remaining ISA-contribution allowance.

(As it happens, I'm the boring type of guy who plans to contribute through the year, to get capital into the tax wrapper as soon as I can spare it).

The fascinating thing is that this FOMO-based marketing strategy isn't used at all by my pension provide, to encourage me not lose the chance to exploit my £40,000 annual allowance. Not at all.

bowlhead99

FatherAbraham wrote: »

The fascinating thing is that this FOMO-based marketing strategy isn't used at all by my pension provide, to encourage me not lose the chance to exploit my £40,000 annual allowance. Not at all.

While having £20k on hand with which to max out an ISA allowance is not something that most can afford (given median incomes), the idea of using a savings or investment product to protect some of your liquid assets from tax is something that pushes the right buttons with the general population, especially if -as they say - you lose the allowance if you don't use the allowance. Even if most people could in fact just use next year's allowance because they're nowhere near the "£20k of spare cash" limit next year either.

However, pensions are something of a different kettle of fish:

- annual limit is much higher. Most don't earn £40k, let alone have £40k spare after living their life that they can throw into an investment product;

- a cash or an investment ISA may be a good store of your liquid assets for a couple of years (cash) or five to ten to fifteen years (investments). Committing those assets to a pension means getting nice tax breaks, but through the mechanism of waving goodbye to them until your late fifties (a long time for many earners).

- it's not really use it or lose it, given you can carry forward the £40k limit for up to three future years at long as you have sufficient salary in those years. Okay it's not a guaranteed carry forward because there's that limit of sufficient salary in those years' - but frankly, most who have £40k of spare income this year that they can afford to lock away until at least their late fifties, and will be maxing out next year's £40k too so that they actually need to make use of that carry forward functionality, are probably going to have substantially more than £40k income next year, and so wouldn't find the salary cap completely prohibitive.

So for all those reasons, a marketing campaign which said, "warning, if you and your employer don't finish putting £40k+ of your gross salary into your pension this month and lock it away until your late fifties, be aware that you will only get the chance to think about it again for several more years before you lose the ability to carry forward your 2018/19 allowance..." may not fire up the same urgency or passion in the man on the street as the FOMO / UIOLI advertising specialists hope.

- ISAs can be quite useful for the middle classes who have the money to fund them and so if you're going to save or invest, it is not difficult to decide to use one (other than the cash versions while interest rates are on the floor and everyone already has a personal savings allowance). So people can be tipped over into using one if providers throw a bit of FOMO at them.

- By contrast, it's so hard to convince people to lock up their money for perhaps decades into the future in exchange for tax breaks, that the government had to make it compulsory for people to be auto enrolled to contribute to a workplace pension (and mandate free employer cash be given to support the process) in order to get people to take notice. In that context, a Fear Of Missing Out campaign to tip more people into making Sipp contributions (when the chance of Missing Out is offset by the limit being so high and carry-forwardable) is unlikely to grip the nation.

You do tend to see providers on money spots on TV or in Sunday papers mentioning that it's good to cut your higher rate tax bill by making extra pension contributions if you can -especially if you have a high marginal tax rate eg child benefit or personal allowance clawback. This is a year round thing but generally picked up more near the end of a tax year. Really the time to consider that you must 'use it or lose it' for pensions is when you get a big bonus or inheritance or lottery win, or you are just about to retire and cut your earnings so won't be able to contribute so much next year. Those situations don't affect a massive proportion of the workforce in a given year.