Tax-free cash Isas under threat from Rachel Reeves as pensioners warned to expect 'greater shock'

Tax-free cash Isas have come under threat from Rachel Reeves as pensioners have been warned to expect a “greater shock”.

Reports have revealed that the Chancellor has been pressured to cut tax relief on cash Isas to push savers towards more volatile investments.

Reeves met with City firms who claimed that the £300billion held in cash Isas would yield better results if they were invested in riskier stocks and shares Isas.

She is reportedly considering cutting tax benefits for the savings scheme, according to the Telegraph.

However, experts have cautioned against the move, saying it may disproportionately penalise pensioners who usually opt for a more careful approach to savings.

Cash Isas are considered a “safe haven” and popular among pensioners who have saved a substantial amount of money.

Jordan Clark, the financial planner at Quilter said: “Older savers, in particular, tend to hold significant amounts in cash Isas. The average Isa value at the end of 2021 to 2022 was around £9,477 for the 25 to 34 age group.”

“This is compared to around £63,365 in the 65 and over group. A Freedom of Information request from Lane Clark and Peacock also revealed that in 2019, 5.8 million over-65s held Isas, with 3.4 million holding exclusively cash Isas, totalling £87billion in these accounts.”

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“Removing cash Isa tax breaks would come as a much greater shock to pensioners.”

People can earn tax-free interest on up to £20,000 each year held in cash Isas. This has been frozen until 2030, which means the limit will have been the same for 13 years by the end of the decade.

It was revealed in 2024 that Reeves had previously called for a £500,000 limit on Isas in a 2016 Independent article.

Speaking to the Mail on Sunday, Andy Briggs, boss of insurance group Phoenix said: “I’m hopeful that Rachel Reeves will see the sense in refocusing Isa tax incentives to align with the Government’s broader economic growth strategy.”

Anne Fairweather, of Hargreaves Lansdown, said: “The big barrier to investment is not the Isa framework. We should concentrate on building confidence to invest.”

She added that rather than changing the products, the focus should be boosting investment levels.

“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,” she said.

“There are a lot of smaller savings institutions like building societies and credit unions which offer cash ISAs and will not offer one combined with investments. They might exit the market.”