Three million cash Isa pensioners hit by inflation

The savings of millions of pensioners are at risk of inflation as they hold Isa portfolios purely in cash, according to the latest figures from HMRC.

Information in a freedom of information request by former superannuation minister Sir Steve Weber, a partner at London superannuation advisers Lane Clark & ??Peacock, sheds light on the risks surging inflation poses to older savers.

“These numbers show that a lot of money is rotting cash isas,” Weber said. “As inflation soars, the spending power of cash savings is being severely eroded. “

Of the nearly 6 million people aged 65 and older who hold an individual savings account (Isas), more than 3 million hold only cash. The total pot held by this age group is £300 billion, of which the cash-only holders are £87 billion, and the average pot is around £52,500.

Helen Morrissey, senior pensions and investment analyst at Hargreaves Lansdown, said cash Isas could be handy for certain activities. “It’s a good idea to keep some of your retirement savings in cash – for example, keeping your basic expenses for one to three years in one easy-to-access account, which means you can keep your day-to-day needs safe while still meeting your daily needs??? The rest of the money is working as best it can.”

But even regular cash Isas, which generally offer better deals than instant access deals, are unlikely to offer rates higher than 1%, although last year rate hike Provided by the Bank of England.

“We’ve had a decade or so of really mild inflation conditions,” said Tom Selby, director of retirement policy at investment platform AJ Bell. “Those who just put money in a cash account and haven’t factored in inflation will be in the 10-to-10 range. Shocked after 15 years.”

UK inflation rises to 5.4% In the year to December, it was above economists’ forecasts and the highest level in 30 years.

“We’ve seen a huge increase in the price of gas and electricity bills,” Morrissey added.UK is explore Radical intervention in electricity markets to protect consumers.

In terms of the nature of the investment, investors should consider extending life expectancy, Selby said. “If you’re in your 60s or even early 70s, your investment horizon is likely 25 to 30 years,” he said. “If you’re in that position, you should think about investing your money, taking into account the balance of risk and purpose.”

Even those focusing on short-term investments may be better focused on other cash products, such as fixed-rate bonds, as they may be a better hedge against inflation, he said.

Data from investment platform Interactive Investor, published last March, showed an increase in outflows from cash Isas to stocks and equity Isas, which have proven more resilient as a hedge against inflation, in 2020 compared to 2019.

“One of the main benefits of Isas is that you don’t have to pay taxes on your income or growth,” said Amy Pethers, an adviser to wealth management firm Brewin Dolphin. “So, because of the low returns in this low interest rate environment , if you hold cash in the Isa, you limit the impact of those benefits.”

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