New information obtained under the FOI Act on holdings of ISAs by pensioners shows that over three million hold all their ISA savings in cash.  Current high inflation rates will result in ‘savage’ cuts of over £3bn in the spending power of their savings in the next year, according to LCP partner Steve Webb.

Regular published statistics on ISAs provide information on total holdings of ISAs 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.  Whereas investment growth should help to protect the real value of stocks and shares ISAs, most cash ISAs are paying very little interest, which means that when inflation soars, the spending power of cash savings is eroded very rapidly.  The new data contained in the FOI reply makes it possible to assess the scale of this problem for pensioners, who are already facing a squeeze as their state and other pensions will rise by less than inflation in April.

The published data (Table 9.11 of the ISA statistics) shows that in the latest year for which figures are available (2018/19), there were 5.8 million over 65s holding ISAs of any sort, with total ISA savings of just over £305 billion.  The average over 65 ISA holding was around £52,500. 

Alarmingly, the new figures show that 3.4 million of these over 65s are holding an average of £25,383 exclusively in Cash ISAs, with a total amount of cash-only pensioner savings in these low-return vehicles of £87 billion.

Interest rates on cash ISAs are constantly changing, and slightly higher rates are available to those who are willing to commit to a fixed time period, but very few of these 3.4m pensioners are likely to be earning interest of more than 1%, and many considerably less.  Indeed, some instant access cash ISAs are paying close to zero (eg the Natwest cash ISA pays 0.01% on balances under £50,000, whilst Barclays pays 0.05% on balances up to £30,000).

With inflation (CPI to December 2021) currently running at 5.4%, even a 1% interest rate means that pensioners will lose 4.4% of the spending power of their savings this year.  Applied to the £87 billion held by cash-ISA-only pensioners in cash balances, this implies a £3.8 billion hit in a single year on the real value of pensioner savings for those who hold all their ISA savings in cash.  For each pensioner, this is an average loss of over £1,100 in spending power in the next year.

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.

Commenting, Steve Webb 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”.

Notes to editors

The full FOI tables are available on request.  The following is an excerpt of the data for those holding cash ISAs only by age group:

Source: FOI reply to Steve Webb, LCP, January 2021

These calculations do not include a further 1.3m pensioners who have a mix of cash and stocks and shares ISAs.