The Building Societies Association has warned the Chancellor to pause plans to reform cash ISAs for two years, cautioning that the changes could discourage investment.
The government is set to alter cash ISA rules in six months' time, with reforms due to begin in April. Under the new rules, no more than £12,000 a year can be put into a cash ISA by anyone under the age of 65. Savers who wish to use the rest of their allowance must place the remaining £8,000 into investments such as stocks and shares.
Radio 4's Moneybox programme highlighted that the reforms affect the popular savings and investment plans, which are currently free of income and capital gains tax. Adults can currently put up to £20,000 a year into an ISA in cash, investments, or a mixture of the two.
Warning over the impact of the changes
Host Paul Lewis said: "The government has been told it should pause its plans for major reforms in the rules for ISAs - Individual Savings Accounts, which are due to begin in April. The popular savings and investment plans are currently free of income and capital gains tax, and every year an adult can put up to £20,000 into one in cash, investments or a mixture of the two."
He added: "But from April, no more than £12,000 a year can be put into a cash ISA by anyone under the age of 65. If they want to use up the rest of their allowance, they must put any of the remaining £8,000 into investments like stocks and shares."
"With less than 6 months to go before the rules change, the Building Societies Association warned the Chancellor this week the changes wouldn't encourage investment."
Concerns from the Building Societies Association
Building Societies Association Chief Executive Sarah Harrison said: "We support the government's aim of helping more people to invest but weakening cash ISAs could have the opposite effect. Research from the University of Bristol found that people with a cash ISA were 83% more likely to go on to invest, showing that saving in cash can be a stepping stone towards wider financial confidence."
She continued: "7 in 10 cash ISA savers were opposed to a lower limit, so we believe the sensible approach is for the Chancellor to pause the changes for 2 years giving time to assess the full impact of other steps being taken to support people to invest with confidence."
Impact on savers
More than 15 million people put money into cash ISAs in the 2023-4 financial year. Independent financial advisor Kirsty Stone said: "People who are looking to save aggressively and are in a fortunate position to do that, it will raise questions about how that go about that."
She added: "The easiest way to save money tax efficiently has been an ISA arrangement and so the complications are something completely new and people aren't aware or prepared for it."
Mr Lewis asked about the details of who the changes impact and when people have to turn 65 to avoid the cut. Ms Stone explained: "After April 2027." Mr Lewis clarified, saying people have to be 65 for the whole tax year for it to affect them.
