Plans to scrap or scale down the cash ISA would seriously affect the retirement and home ownership dreams of millions of Brits, according to a survey.
Chancellor Rachel Reeves is believed to be looking at limiting the cash ISA allowance from £20,000 to £4,000 a year or even scrapping it entirely in a bid to encourage more people to invest in the stocks and shares version of the tax-free savings account.
Many of the younger savers aged 25-34 who took part in the research by Nottingham Building Society said a cut in the cash ISA allowance would impact their ability to put down a home deposit; while over 55s said it would dent their retirement plans.
If the allowance is cut, the research found an estimated 2.5 million would simply save less.
The society spoke to 2,000 cash ISA holders and found that a fifth (20%) would struggle to save to put down a deposit for a house while one in three savers (34%) fear their ability to save toward their retirement would be impacted.
Over a third 36% say it would also hit their ability to build an emergency fund.
Nottingham Building Society is urging Reeves not to reduce the cash ISA allowance.
It said separate research it carried out had shown the increasing challenges first time buyers (FTBs) face in getting on the housing ladder.
There has been a marked increase in the number of FTBs needing financial support to secure a mortgage over the last year, with a third (31%) of mortgage brokers reporting a rise in multi-generational purchasers pooling resources to fund deposits.
Nottingham Building Society’s research also reveals little evidence the move would see a surge of money invested elsewhere. Only 38% say they would consider investing more in a stocks and shares ISA, while one in three cash ISA holders – an estimated 2.5 million people – say they’d simply save less.
More than half of savers who took part in the survey (55%) oppose any cuts to the cash ISA allowance, while 78% believe the government should be promoting tax-free allowances such as Cash ISAs rather than discouraging them.
Nottingham Building Society warned savers fear the move will “negatively impact their homeownership dreams and retirement plans”.
Chief Savings Officer Harriet Guevara said: “With economic uncertainty high and the appetite for these products strong, limiting people’s ability to save towards their goals and to build a financial safety net would be the wrong step at the wrong time.
“While we support the Government’s broader efforts to stimulate economic growth and drive investment in UK businesses, there’s no guarantee that reducing the cash ISA allowance would actually help. What’s worse, there’s real concern that it will simply lead to people saving less.
“Many of our ISA customers are older, and these findings show that the overwhelming majority of over-55s oppose these plans while a quarter will simply save less if their Cash ISA allowance is cut.
“Cutting the cash ISA allowance would be a massive blow to millions across the UK. We urge the Chancellor not to restrict this vital savings tool, and to provide peace of mind by confirming as a matter of urgency that the annual allowance will be staying as is.”
