ISAs  

More than 3m pensioners hold all Isa savings in cash

More than 3m pensioners hold all Isa savings in cash

More than three million pensioners keep all their Isa savings in cash, meaning current high inflation rates could dampen its spending power.

A Freedom of Information request submitted by LCP found that in the latest year for which figures were available (2018-19), there were 5.8m over-65s holding Isas of any sort, with total Isa savings of just over £305bn.

The average amount held in an Isa by this age group was £52,500 but 3.4m of these were holding an average of £25,383 exclusively in cash Isas, with a total amount of £87bn sat in these vehicles.

But these figures do not include a further 1.3m pensioners who have a mix of cash and stocks and shares Isas.

Steve Webb, a partner at LCP, warned current high inflation rates would result in ‘savage’ cuts of more than £3bn in the spending power of savings in the next year.

He said: “Whilst holding small amounts of cash in an easy access account can be convenient, these figures show that huge amounts of money are sitting rotting in cash Isas.  

“Inflation is like a tax on savers. With inflation soaring, the spending power of cash savings is being savagely reduced. Many instant access cash Isas pay little or no interest and runaway inflation will take a huge chunk out of the value of these savings. 

“Older savers need to consider urgently whether keeping their money in these cash accounts is the best way to protect their hard-earned savings, especially when the real value of their state pension is also being squeezed”.

Webb added that very few of the 3.4m pensioners were likely to be earning interest of more than 1 per cent, and many considerably less.  

And many cash Isas are paying to zero, for example the Natwest cash Isa pays 0.01 per cent on balances under £50,000, whilst Barclays pays 0.05 per cent on balances up to £30,000.

With inflation currently running at 5.4 per cent, even a 1 per cent interest rate means that pensioners will lose 4.4 per cent of the spending power of their savings this year, according to LCP.

Applied to the £87bn held by cash-Isa-only pensioners, this implies a £3.8bn hit in a single year on the real value of their savings.  

For each pensioner, this is an average loss of over £1,100 in spending power in the next year.

Regular published statistics on Isas provide information on total holdings by age group, but do not break this down to show the extent to which money is held by each age group in cash Isas only, stocks and shares Isas only or a mix.

According to the FOI, out of the total of 3.4m pensioners there are slightly more female (1.8m) than male (1.6m) pensioners, though average balances for both groups are very similar at just over £25,000 in each case.  

Women over 65 are however slightly more likely than their male counterparts to have very large cash-only balances, with 293,000 women with £50,000 or more in cash compared with 273,000 men.