In a significant overhaul of Britain's savings landscape, Chancellor Rachel Reeves has confirmed a major reduction to the cash ISA allowance while protecting pensioners from the cut.
The annual contribution limit for cash ISAs will be slashed from £20,000 to £12,000 starting in April 2027, marking the first change to the regime since 2017. However, savers aged 65 and over will retain the full £20,000 allowance.
Protecting Retirement Savings
The Treasury's decision to shield pensioners from the reduction has been welcomed by financial experts who argue retirees often need larger cash reserves as they enter retirement. The move allows older savers to transfer funds from stocks and shares ISAs into lower-risk cash ISAs without facing reduced limits.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, described the age-based rules as "smart" but cautioned about potential complexity. "One of the key attractions of ISAs is that they make life easier for savers and investors because they don't have to worry about tax," she said. "The way this change is implemented needs a focus on simplicity."
Ending Industry Feud
The confirmed reduction brings closure to a heated dispute between building societies and investment platforms that had been raging since rumours of a cut first emerged. The final £12,000 cap represents a compromise from the £10,000 limit initially considered.
Building societies had strongly opposed any reduction, arguing that cash ISAs provide essential funding for mortgages and that cutting these inflows could make home loans more expensive. Despite the higher-than-expected limit, lenders described the decision as a "sucker punch for savers."
Harriet Guevera, chief saving officer at Nottingham Building Society, expressed disappointment: "At a time when financial confidence is already fragile, cutting the allowance sends a difficult message to households who are trying to do the right thing."
Meanwhile, investment platforms had pushed for even deeper cuts, with some advocating for the complete abolition of cash ISA limits to encourage more people toward stocks and shares investments.
Broader Investment Strategy
The cash ISA reduction forms part of the government's wider strategy to boost domestic investment and discourage excessive cash hoarding. The Treasury has abandoned plans for a Brit ISA that would have required minimum 20% allocations to UK equities, following limited support from industry bodies.
Instead, the government is pursuing an industry-led campaign to promote investment benefits, scheduled for launch before the 2026 ISA season. However, this initiative has suffered setbacks with several major platforms, including Interactive Investor, AJ Bell, Freetrade and Trading 212, withdrawing due to cost concerns.
Richard Stone, chief executive of the Association of Investment Companies, welcomed the cash ISA cut as "a milestone toward creating a nation of investors" that would help build a stronger investment culture in the UK.
The changes come as cash ISAs remain Britain's most popular savings product, with approximately £360 billion currently deposited across millions of accounts.
