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Possibility of reduction in Cash Isa limit on Wednesday Budget A finance expert has said that this will not necessarily motivate people to invest their money.
The Financial Times has reported that the annual Cash Isa limit could be reduced to £12,000.
Sarah Coles, Head of Personal Finance Hargreaves LansdowneSaid: “We need an investment culture in the UK, and some of the money saved should be in cash Jesus People would have to work harder if investments were made instead, but there is no evidence that cutting the cash Isa allowance would encourage them to make the change.
“There will be people for whom cash issuance is the most sensible home for their money, especially if they are saving for the short term, have significant amounts of cash and are high earners.
“When (Hargreaves Lansdown) surveyed clients about what they would do in the event of cuts, they were equally likely to say that allowance cuts would mean making savings elsewhere as they were to say that they would invest instead.
“There will be people who should be investing instead, but the game changer here will be changes to the pipeline that will allow businesses to provide more targeted support and give people the help they need to take advantage of the huge growth potential of investment. It’s the carrot that is going to be effective here: not the stick.”
In June, financial conduct authority (FCA) said it aims to reduce the “advice gap” – so that people can get the help they need, in a timely manner, to the best of their ability, to make informed decisions about their financial lives.
The regulator has previously said the gap in advice is “clear”. According to the FCA’s Financial Lives Survey 2024, only 9% of adults received financial advice about their pension or investments in the last 12 months.
Ms Coles said savings can act as a “gateway” to investing, adding: “This is definitely something we see with our clients, so they start by opening a cash Isa, and as they develop their understanding of investing, they move this money into a stocks and shares Isa.
“The current system makes this simple, as there is flexibility in transfers, so it is easy to go from cash to stocks and shares and back again. If this change is introduced, the government needs to focus on keeping the journey as simple as possible for customers.”
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In October, the Treasury Committee urged the Government not to cut Cash Isa limits in the hope of encouraging more people to invest in stocks and shares, saying such a move would be unlikely to encourage savers.
The committee said the focus should instead be on improving financial literacy and increasing access to good advice and guidance, so that people can make informed decisions with their savings.
Rumors that Cash Isa limits could be reduced have been circulating for several months, with various annual limits being considered.
It is understood that several possible options have been considered.
Building societies have argued that Cash Isa savings are an important funding source for their mortgage loans. If Isa flows decline, funding costs could rise, potentially making mortgages more expensive and harder to access, he has argued.
The current annual Isa limit is £20,000, all of which can be rolled over into cash if the saver wishes.
Nearly 15 million adult Isa accounts were subscribed for in 2023/24, up from 12.4 million in 2022/23, according to HM Revenue & Customs (HMRC) figures released in September.
Just under 10 million Adult Isa accounts were subscribed to Cash Isa in 2023/24, representing an increase of 2.1 million compared to 2023/24.
Almost £103 billion is subscribed for Adult Isas in 2023-24, an increase of £31.4 billion compared to 2022/23. The increase was due to an increase in Cash Isa subscriptions, which increased by £27.9 billion, HMRC Said.
A recent Freedom of Information (FOI) request made by InvestEngine to HMRC found that the average Isa pot value of the top 25 stocks and shares was almost 17 times the average of the largest cash Isa accounts.
The average value of just the top 25 highest priced stocks and shares Isas was £10,980,000.
According to the figures, the average value of the top 25 highest value Cash Isas for tax year 2022/23 is just £640,000.
The HMRC document also said there were around 3,080 Isa accounts with a market value of more than £1 million in 2022/23.
This counted 30 Cash Isa accounts with more than £500,000 and 38,680 stocks and shares accounts with at least £500,000 in the tax year 2022/23. Data were rounded to the nearest 10.
Tom Selby, director of public policy at AJ Bell, said: “Rather than pressing ahead with ill-considered ISA changes in this Budget, the Chancellor needs to step back from the cliff and gather evidence on the best way to reform ISAs to support retail investors.
“There is no clear benefit to investors, the economy or the government from proceeding with half-baked reforms that are unlikely to be effective and will be widely criticized by the industry and the general public.”