New Cash ISA Limits Announced for Under-65s
Starting in April 2027, individuals under the age of 65 will no longer be able to deposit the full £20,000 into a cash ISA. Instead, their annual allowance will be capped at £12,000, while those aged 65 and over will retain the current limit of £20,000. The change is part of reforms originally proposed by former Chancellor Rachel Reeves and will be administered by Prime Minister Andy Burnham and Chancellor John Healey.
A cash ISA is a tax-free savings account offered by banks and building societies, allowing savers to earn interest without paying UK tax. Under the new rules, over-65s will also be permitted to transfer money from a stocks and shares ISA into a cash ISA without penalty, a privilege denied to younger savers.
Criticism Over Age Cut-Off and Lack of Logic
The decision to set the cut-off at age 65 rather than the State Pension age of 67 has drawn sharp criticism from financial advisers. Scott Gallacher, director of Leicester-based Rowley Turton, described the policy as “a complete dog’s dinner”, noting “a remarkable lack of joined-up thinking by the government”. He argued that aligning the cut-off with State Pension age would have made more sense, adding: “The government is effectively saying you are too young to receive your State Pension, but old enough to receive preferential ISA treatment.”
David Stirling, an independent financial adviser at Mint Wealth, echoed the frustration. He said: “The new ISA rules are a masterclass in government policy that sounds coherent in a press release and disintegrates on contact with reality.” Stirling highlighted the arbitrary nature of the age 65 threshold, calling it “the apparently magic number of 65, selected for reasons the government has yet to share with anyone.”
Practical Challenges for Savers
The changes create practical difficulties, especially for younger savers with fixed-term deposits inside investment ISAs. Stirling warned: “Anyone locked into a fixed-term deposit inside an investment ISA maturing after April 2027 gets penalised for something they did entirely legally under rules since rewritten around them.” Additionally, a 22% charge on cash interest held within stocks and shares ISAs will apply, but older savers can sidestep it by transferring to a cash ISA, while younger ones cannot. This disparity adds to the confusion, with Stirling noting that savers will now “need their birth certificate and a flowchart just to work out what they are allowed to do.”
The government has yet to provide a clear rationale for selecting age 65 over State Pension age, leaving advisers and the public puzzled. The reforms are set to take effect from April 2027, giving savers limited time to adjust their strategies.
