Pensioners are being cautioned not to take their tax-free options lightly as the April deadline approaches while Rachel Reeves is reportedly facing calls to scrap the tax-free benefit of Cash ISAs.
GB News highlighted that these accounts are « under threat » after the Chancellor’s discussions with City firms, who suggested that the £300 billion held in Cash ISAs could yield better returns if invested in alternatives like stocks and shares ISAs.
The Telegraph has reported that she was « open » to the idea, but experts have criticised the move, with many emphasising that tax-free cash savings have been a « safe haven » for pensioners who have accumulated significant savings.
Cash ISAs offer the advantage of earning interest without any tax implications.
This makes them especially appealing to higher-rate taxpayers with lower personal savings allowances on interest or those with large savings that would earn interest far above their allowance.
Jordan Clark, a financial planner at Quilter, highlighted that the average cash ISA balance for individuals over 65 is £63,365, which is almost seven times more than the average £9,477 saved by those aged between 25 and 34.
Most older cash ISA holders do not have other types of ISAs according to the expert as he added: « Removing cash Isa tax breaks would come as a much greater shock to pensioners. »
Anne Fairweather from Hargreaves Lansdown has highlighted that the « big barrier to investment » is not the tax-free nature of cash ISA accounts, but rather a lack of confidence among savers to invest.
She explained: « People like to pot their money. If we just had one Isa, we would need to give investment warnings to people who only held cash. »
As the new tax year approaches in April, experts are reminding savers to utilise this year’s allowances, which could involve maximising their £20,000 limit or annual pension saving allowance before the deadline.
This advice comes at a critical time as Emma Sterland, Chief Financial Planning Director at Evelyn Partners, warned savers about taking these reliefs for granted she told Reach: « Taking advantage of pension tax relief is now perhaps more important than ever.
« Who knows what could happen to the generous system of pension tax relief, or to the recently-expanded £60,000 annual allowance, in the next few years?
« She also noted that while the annual allowance for pension contributions can be carried forward, there’s no certainty that the ‘carry forward’ rules, the current form of pension tax relief, or the increased annual allowance will remain indefinitely. »
