“Tax-Free Cash ISAs in Danger: Rachel Reeves’ Plan Could Deliver a ‘Greater Shock’ to Pensioners’ Savings!

Cash ISAs are seen as a safe option, especially for pensioners who have saved a lot of money. However, there are concerns that tax-free cash ISAs might face changes under Rachel Reeves, potentially causing a “greater shock” for savers.

Reports suggest that the Chancellor is being pressured to reduce tax benefits on cash ISAs to encourage people to invest in riskier options like stocks and shares ISAs.

Reeves has reportedly met with financial firms who argue that the £300 billion held in cash ISAs could perform better if invested in more volatile markets. She is said to be considering cutting tax relief on these savings accounts.

Experts warn that such a move could unfairly affect pensioners, who often prefer safer savings options. Cash ISAs are particularly popular among older savers, with data showing that people aged 65 and over hold significantly more in these accounts compared to younger age groups.

For example, in 2021-2022, the average ISA balance for those aged 25-34 was around £9,477, while for those 65 and over, it was £63,365. In 2019, 3.4 million over-65s held cash ISAs, totaling £87 billion.

Currently, people can earn tax-free interest on up to £20,000 a year in cash ISAs, a limit that has been frozen until 2030. Removing tax breaks on cash ISAs could hit pensioners hard, as they rely on these accounts for secure savings.

Reeves has previously suggested capping ISAs at £500,000 in a 2016 article. However, some experts argue that the focus should be on boosting confidence in investing rather than changing the ISA system.

Anne Fairweather of Hargreaves Lansdown emphasized that many people prefer keeping their money in cash, and altering the ISA framework could discourage smaller savings institutions, like building societies, from offering these accounts.