Money Saving Expert Martin Lewis has issued his response to significant changes for Cash ISAs announced in the recent Budget, following a key discussion with the Chancellor.
Key Changes to Your Cash ISA Allowance
The government has confirmed a major reduction to the annual Cash ISA contribution limit for a large portion of the UK's savers. Starting from April 6, 2027, individuals under the age of 65 will see their annual allowance cut from the current £20,000 to £12,000.
This forms a central part of the government's strategy to encourage a shift in saving habits, particularly among younger demographics. The core motivation is to move people away from holding large cash balances and towards investment products with the potential for higher growth.
The Crucial Exemption for Older Savers
In a significant win for consumer advocacy, Martin Lewis secured a vital exemption that softens the policy's impact. He successfully argued that it would be a "perverse policy" to reduce the limit for older individuals who are statistically less likely to invest.
As a result of this "carve out", savers aged 65 or over will retain the full £20,000 annual Cash ISA allowance and will not be subject to the reduction. Lewis noted that while the change is significant, it "isn't as bad as it could've been" thanks to this protection for pensioners.
What This Means for Your Overall Savings
It is crucial for savers to understand that the total annual tax-free ISA allowance remains at £20,000 for all ages. The change specifically targets where that money can be placed.
For savers under 65, the new structure effectively creates an incentive to use the remaining £8,000 of their allowance in other tax-free vehicles. The policy is designed to subtly push the public towards products like:
- Stocks and Shares ISAs
- Other investment-based ISA products
Lewis confirmed that this focus on encouraging investment followed a direct discussion he had with Chancellor Rachel Reeves about the policy's underlying intent. The move aims to help consumers maximise their long-term savings by diversifying beyond cash.
