Will savers be hit again in a raid on cash ISAs?

CHANCELLOR Rachel Reeves is now rumoured to be preparing to slash the annual Cash ISA allowance in half in her upcoming Budget, from £20,000 a year to just £10,000.

- By Harvey Jones

This is the second time this year that the proposal has surfaced, with earlier reports suggesting it could be cut as low as £4,000.

We won’t know for sure until November 26, but it’s a worry for risk-averse savers who rely on their Cash ISAs to generate a reliable tax-free income in retirement.

If Reeves acts, she’ll claim she wants to encourage more people to shift their money into the stock market instead, where it can work harder and generate higher returns. The Stocks and Shares ISA limit is expected to stay at £20,000, to encourage more equity investing.

Shares do tend to outperform cash over the longer run, but with an awful lot more volatility along the way.

While younger people can afford to ride out market dips, older savers don’t have that luxury.

GOOD

There is one piece of good news. So far, there are no suggestions that Reeves will place any restrictions on existing Cash ISA funds.

This is despite calls for tax-free ISA pots to be subject to a £100,000 lifetime cap. Current funds might be safeguarded, but savers could tuck away less going forward. Again, we don’t know for certain.

As well as the Cash ISA, most savers also benefit from the personal savings allowance (PSA), which applies to standard savings accounts.