Pension savers could be hit with a "greater tax burden" due to rumoured reforms to ISA products, which are being floated by the Labour Government. Chancellor Rachel Reeves is understood to be considering a cut to the tax-free allowance attached to cash ISAs.
Financial planning experts at Saltus have shared these concerns, with financial planner Henrietta Grimston warning the move "risks penalising these sensible savers, making it harder to build tax-efficient pots for the future".
She added: "As people approach retirement, or other significant milestones where they need to access capital quickly, this could create a bigger savings burden, with tax taking a greater bite out of any growth."
Grimston warned this could "reduce the overall efficiency of their retirement savings plans, as less can be sheltered in a tax-free wrapper, meaning they may need to save more just to reach the same target".
Pension savers could be hit with a "greater burden" if ISA reform is carried out
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The changes risk "pushing individuals into more complex tax situations, where they may need to submit tax returns for the first time, adding administrative stress and potentially costly mistakes", she said.
Grimston cautioned: "If the goal of limiting cash ISAs is to drive more people towards investing, it risks encouraging behaviour that is not aligned with people's risk appetite or financial goals."
The Building Societies Association has joined forces with 51 building societies, mutual organisations and financial companies to oppose Chancellor Rachel Reeves's reported plans to slash the cash ISA allowance from £20,000 to £4,000.
In an open letter sent ahead of the Chancellor's expected announcement at her Mansion House speech later this month, the coalition warned that cash ISAs represent a "cornerstone of personal savings for millions across the UK, helping people from all walks of life to build financial resilience and achieve their savings goals".
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Savers are looking for the best ways to make their money go further GETTYThe signatories, which include major institutions such as Nationwide, Yorkshire Building Society and Coventry Building Society, argued that the tax-free savings accounts play a "vital role in the broader economy" by supporting lending activities.
This coalition cautioned that reducing cash ISA limits would make funding "more scarce, which could have the knock-on effect of making loans to households and businesses more expensive and harder to come by".
They warned this would "undermine efforts to stimulate economic growth, including the government's commitment to delivering 1.5 million new homes".
The letter also stated that cutting the allowance would send a "discouraging message to savers" whilst making the entire ISA system "more complex and make it harder for people to transfer money between cash and investments".
Robin Fieth, chief executive of the Building Societies Association, emphasised that cash ISAs are "used for a wide range of purposes -- from saving for a first home to managing finances in retirement".
He stressed: "These are not idle funds; they serve real, practical needs for both savers and the building societies, banks and other providers that receive the funds, and use them to support mortgage and other lending."
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Rachel Reeves will announce reforms in next week's Mansion House address
GB NewsCecilia Mourain, chief homebuying and savings officer at Moneybox, which serves over one million savers and investors, added: "Cash ISAs are vital for building financial resilience, and reducing the tax-free allowance is unlikely to deliver on its intended objectives."
She warned it would "discourage sensible saving behaviour, weaken demand for a popular product and disrupt the flow of capital that supports mortgage lending and economic stability".
The Chancellor is scheduled to announce potential reforms in her upcoming Mansion House speech next week.