Chancellor Rachel Reeves has unveiled significant changes to the rules governing cash Individual Savings Accounts (ISAs), confirming a major reduction in the annual contribution limit for most savers.
What Are The New ISA Rules?
The headline change is a substantial cut to the amount savers can pay into cash ISAs each tax year. The annual allowance will be reduced from £20,000 to £12,000. This move, announced by the Chancellor, is set to take effect from April 2027, giving households just over a year to prepare.
This marks the first reduction to the cash ISA allowance since 2017 and represents a direct shift in government policy aimed at personal finance and economic growth. According to analysis, the government's intention is to encourage a greater proportion of household savings to be directed away from cash and into investments in stocks and shares.
A Key Protection for Pensioners
However, the Chancellor has confirmed a crucial exemption to this new rule. Individuals aged 65 and over will be completely protected from the reduction.
For state pensioners and others in this age group, the current £20,000 annual cash ISA contribution limit will remain firmly in place. This means a clear two-tier system will exist from April 2027: those aged 64 or under will face the new £12,000 cap, while those aged 65 or older can continue to shelter up to £20,000 per year in a tax-free cash ISA.
Implications for Savers and The Economy
The changes announced by Rachel Reeves have immediate and long-term consequences. For the majority of working-age savers, the ability to build tax-free cash savings will be constrained. It is important to note that the change only applies to new contributions made from April 2027 onwards and does not affect any money already saved within existing ISA pots.
Financial experts, including Money Saving Expert, have clarified the practical impact:
- Aged 65 or older? No change. Your cash ISA limit stays at £20,000.
- Aged 64 or under? Your cash ISA limit will fall to £12,000 from April 2027.
The government's stated economic aim is clear: by making cash savings less attractive from a capacity standpoint, they hope to stimulate investment in UK equities and bonds. This, in theory, channels more capital directly to businesses to foster growth and boost the broader economy.
The coming year will be a key period for financial planning as households assess how to maximise their allowances before the new rules come into force.
