Chancellor Rachel Reeves announced major changes to savings policy in the Autumn Budget, including a reduction in the annual Isa allowance from £20,000 to £12,000 from April 2027. The remaining £8,000 must be invested in stocks and shares Isas, limiting the amount that can be held in cash.
However, savers aged 65 and over will be exempt from this change and can continue to deposit up to £20,000 across any Isa type. This creates an anomaly because the state pension age is currently 66, meaning people qualify for the higher Isa allowance a year before they can claim their state pension.
Andrew Prosser, head of investments at InvestEngine, said: 'Using a fixed age of 65 rather than linking the exemption to the state pension age does potentially create a problem over time. As the pension age rises, the gap between the two will widen.' He added that tying the exemption to the state pension age would be more logical and future-proof.
The state pension age is set to rise gradually from April 2026, reaching 67 by April 2028, with further increases to 68 planned between 2044 and 2046. Labour has confirmed another review of the state pension age will take place.
From April 2027, tax rates on savings interest will also increase by two percentage points: basic rate taxpayers will pay 22%, higher rate 42%, and additional rate 47%. Mr Prosser warned that under-65s who prefer holding over £12,000 in cash may end up paying more tax or reducing their savings.
He also noted that Isas can complement pensions in retirement planning, offering tax-free withdrawals alongside the upfront tax relief of pensions. However, he cautioned that discouraging investing later in life could limit long-term wealth building, especially as people live longer.
