As they age, pensioners often think about their finances from a short-term perspective. When it comes to investing, they lack the time to forego losses in the interest of long-term gains. For this reason, many prefer putting money into cash Isa – a UK savings account that lets you save money tax-free. In the upcoming Budget, Chancellor Rachel Reeves is planning to cut the annual tax-free allowance of £20,000, likely by half. The Treasury’s main argument is that the allowance will offer savers higher returns and boost the economy by prompting them to invest more money into British companies through stocks and shares Isas instead.
According to Nottingham Building Society, however, slashing the tax-free allowance would disproportionately affect retirees, as 47 per cent are most comfortable saving into a cash Isa. Jeremy Cox, of Coventry Building Society, said cash accounts are a reassurance to people such as first-time buyers or pensioners, who “need to be sure the value of their nest egg won’t be changing dramatically”.
HM Revenue and Customs data show that around two-thirds of Isas paid into last year were cash Isas. According to the Building Society Association, cutting the limit could result in as many as 60,000 fewer mortgages, damaging economic growth and reducing tax revenue by £2.5bn over five years, The Telegraph has reported.
And while investing £20,000 in a fund tracking the FTSE 100 could potentially offer more than three times the returns offered by the top-paying cash Isa, some pensioners worry about not being able to access the money quickly if the market falls.
A 75-year-old pensioner told The Telegraph: “Pushing people into stocks and shares Isas when markets are high feels wrong. At my age, it’s more sensible to have money in accessible places.
“The Government could end up with people furious in a year or two, wondering what happened to their investments.”
If the cash ISA allowance is cut, people seeking the safety of a cash ISA in a stocks and shares account could consider money market funds (MMFs), said Laith Khalaf of fund platform AJ Bell. MMFs mainly invest in short-term bank deposits and loans to governments, banks, and large companies, aiming to provide returns similar to cash.
Derence Lee, chief finance officer at financial institution Shepherds Friendly, told the Express: “Cash ISAs have long been an extremely useful tool for many people to save money effectively, and one of the core reasons is the annual £20,000 tax-free allowance.”
If implemented, Mr Lee said the reduction “would deal a huge blow to the millions of people across the UK who rely on Cash ISAs for building their savings, particularly during this period of economic uncertainty”.
He added: “The ability to save tax-free helps people build emergency funds, plan for major life expenses, such as buying a first home, as well as secure their financial future without the burden of taxation eating away at their savings.
“Cutting the allowance so drastically could potentially discourage saving, and with the Bank of England revealing that over £49.8bn was deposited into Cash ISAs in 2024, it’s clear to see that savers value the security and benefits of these accounts.”