The annual Isa allowance will be increased from £11,520 to £15,000 1 July, but a change to the structure of the regime actually means the limit has been upped by close to £10,000 for cash Isas.
In his second major rabbit to be pulled from the Budget hat, George Osborne revealed the increased limit will apply to a new single Isa, which combines the current cash and stocks & shares wrappers. It has already been re-branded the Nisa.
Mr rge Osborne also stated Junior Isa limits will be increased to £4,000.
He said: “Twenty four million people in this country have an Isa. And yet millions of them would like to save more than the annual limits of around five and a half thousand pounds on Cash Isas, and eleven and a half thousand pounds on Stocks & Shares Isas.
“Three quarters of those who hit the Cash Isa limit are basic rate taxpayers. So we will make Isas simpler by merging the Cash and Stocks Isas to create a single New Isa.
“We will make them more flexible by allowing savers to transfer all of the Isas they already have from stocks and shares into cash, or the other way around.”
Anna Bowes, director of SavingsChampion.co.uk, says it was high time the Isa rules were changed so those who would prefer to remain or switch to cash were not unfairly penalised.
She says: “As people get older and approach retirement many prefer to reduce their investment risk by switching to cash, so we commend the government for recognising this as well as increasing the amount savers can save to £15,000.
“However, a £15,000 Isa is of little benefit if the interest rates being paid are still derisory. We desperately need competition to return for rates to improve.”
Tom Stevenson, investment director of Fidelity Worldwide Investment, says the increased Isa limit and flexibility should prompt advisers to reassess if their client’s savings are working hard enough to meet their goals.
He says: “Those stuck in low-paying cash Isas should consider that equities could provide much greater potential for long-term growth and income.
“Savers have for too long been the losers from the low interest rate environment. It is likely we will now see a proliferation of temporary bonus rates and would urge savers to look through these and consider how they can best achieve their long-term goals.”
Fidelity calculates that if a saver had invested £15,000 into the FTSE All Share index over the 10-year period from 31 March 2004 to 28 February 2014, they would now have £35,218.50.
If, however, they had invested £15,000 into the average UK savings account over the same period, Mr Stevenson says they would be left with just £16,582.65.
Richard Fearon, head of Halifax Savings, says the increase in the limit will benefit all income groups, not just the well off, as his own research shows half the people currently saving the full cash Isa allowance are on incomes of less than £20,000.
He says around one in three people see their Isa as a form of pension – for them, these changes can only help them build a bigger retirement pot.
Mr Fearon says: “We estimate this announcement will help the 1.5m people who are saving every penny into their Isas as a deposit on their first homes. Giving them a greater allowance will further support them in getting on to the property ladder.”
Other major winners are expected to be the major platforms, which The Platforum has estimated could see an increase in sales of around £5bn.
Because 21m people also invest in premium bonds, Mr Osborne says he is lifting the cap for the first time in a decade from £30,000 to £40,000 this June, and to £50,000 next year. Mr Osborne said this move would double the number of million pound winners.
