Why do over 65 have a higher Cash ISA limit in the budget??

[Hungryhippos123]

Cash ISA limit has been slashed - but some people are exempt | Money News | Sky News

I am asking because I don't understand the logic. Why do over 65s get a higher cash ISA limit? Why not younger people too? I understand the logic behind making the stocks and shares ISA more attractive to encourage investment but why have different rules for pensioners? It strengthens the divide and the feeling of unfairness towards younger people trying to save.

But you need spare money to put away in an ISA... they're not for the poor.

The extra high tax rate payers have to pay tax on 100% of their interest in non-ISA accounts.

Thats why premium bonds are popular among high earners to keep cash.

Effective interest rate a bit low, but 0% tax on it (vs 47% on any savings interest).

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Savings for a house (presumably this takes a few years to save but not decades) could be done at low risk with a money market fund inside S&S.

It's really interesting that people here are talking about "risking it in S&S". You can choose the funds you invest in, which can include some very low risk cash-like funds.

Even just a normal broad base index fund is potentially fine for many cases.

S&S ISA doesn't automatically mean
putting all your money into Nvidia.

Money in my Trading 212 S&S ISA can be held as cash, it doesn’t have to be invested, and still earns 4.05% interest, perhaps other ISA providers are the same.

I wonder why 65 is the age cut-off, when state pension age is 66 and will be 67 by then?

well for one reason you should be rebalancing your investments away from volatile s&s well before you need the funds. If the stock markets crash they need time to recover. If you’ve got a personal pension, you should be doing this if you manage your funds yourself, but many rely on ‘life styling’ which will move the balance from s&s towards bonds etc well before your nominated retirement date .

My problem with it is that I started work not long before the 2008 financial crisis. I wasn’t made redundant but lots of colleagues were. In that situation, you’re going to need the savings to live on but they’re going to be heavily reduced. I suspect lots of people my age are getting to the point where they are starting to have some free cash to save, but have the same risk aversion because of remembering that period.

I imagine any young extra high rate tax payers won't be worrying too about missing out on a few ££k of cash ISA savings while they scrimp for their first house deposit

Stocks and shares aren't right for older people who may at short notice need to access money for care. They're a long term investment.

The logic will be that S&S should be long term investments, but the real answer is that older people vote.

If younger people want policies more favourable towards them, they need to start voting.

It is still interesting that large numbers of Americans and Australians (who also experienced the financial crisis) do own stocks though...

I'm sure it's partially explained by Americans just plain having more money to invest, but I think culturally even people who aren't all that well off there still have a bit of money in the stock market.

Hindsight is 20/20 of course, but missing out on the recovery from 2010-2025 was a bigger "loss" than the original crisis shock. I'm really curious about why you don't think this affected your generation's perception of investing too?

I don’t know about Australia but I think one of the differences between the US and the U.K. could be that they don’t have our rather mistaken idea that buying a home is an ‘investment’. Too much of our ‘wealth’ is tied up in unproductive bricks and mortar. Houses decay, they need maintenance - intrinsically they depreciate rather than increase their value!

Pensioners often use Cash ISAs for money they are taking out of their pension or other vehicles like S&S ISA. It isn't that they are saving new money.

The LISA does have a limit which they should address, and it is likely to be replaced soon anyway. I understand there is a review planned and Martin Lewisis campaigning on the limit of house price and the withdrawal penalties.

However if someone has enough funds that they are putting away more than £12k a year and don't want to use the LISA because they are likely to buy a house worth more than £450k then they are probably savvy enough to explore other options such as low risk funds in a S&S ISA , premium bonds, or just paying tax.

These people may not be hugely wealthy but they are privileged and could reasonably be expected to pay a tiny bit more tax.

I use ISAs and am under 65 so I am not coming at this as someone unaffected.

I also have a LISA but the money is now effectively trapped until retirement or subject to penalties as I can't use it for a house purchase.

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No one wants pensioners having their money tied up in risky stocks and shares. After retirement most people move their money to low risk accounts as they need to start drawing down.

This is why Martin Lewis campaigned for this.

Because it's yet another way to benefit pensioners at the expense of workers. See also triple lock, winter fuel allowance, Brexit.

Because you can’t touch pensioners. It’s that simple.

I think they were probably too badly off to benefit. If you’re struggling to find a job in the sector you trained for and attempting to buy a house, you don’t pay too much attention to the stock market. Lots of friends graduated into the crisis from top unis where they were told they’d walk into jobs when they graduated, then there were no graduate jobs. By the time companies were recruiting again they were competing against newer graduates, so much more completion for jobs than in earlier years.

Because they turn out and vote in far bigger numbers than any other age group.

well, they will be paying tax on it if they save for any longer than a year....which is, generally, the whole point of saving!

If the 'young person' (and given we're talking anyone under 65, they don't have to be that young) is earning over £50k, then they will be paying tax on any interest over £500

First year, £12k in an ISA, put "the difference" (£8k) into a normal savings account, at 4.5% (which is currently the highest rate on offer for easy access = £360 interest. Fine, no tax.

Next year, put another £8k, plus the original and interest = £16360. Assuming they can still get 4.5% interest, that year the total accrued interest will be £736.20, so will get taxed at 20%.

So they'll start paying interest after only about 20 months.

Come the third year, and every year after, even those who aren't higher rate tax payers will go over the £1000 interest rate, and be taxed 20%, which you wouldn't if the whole £20k was in an ISA.

Reposting this as this point seems to be getting missed: investing in a S&S ISA doesn't mean you have to invest in risky shares.

S&S ISAs are just a wrapper for accessing a wide variety of funds with different risk levels. So for example, you can choose a cash-type money market fund if you're investing short term e.g. for a house deposit.

https://www.fidelity.co.uk/markets-insights/personal-finance/personal-finance/investing-in-cash-in-a-stocks-and-shares-isa-the-basics/

This is true. This is why the difference is being introduced.

The budget announcement also include a bit about interest / returns on cash or cash-like investments held in S&S ISAs also being taxed in the future, so watch out for the detail on that when they’ve worked it out!