In recent years, due to declining annuity rates, the return from pension savings has significantly reduced for many.
This has led to increasing dissatisfaction with pensions and a demand from the over 50s for alternative savings to help fund their retirement.
One of the options available – the NISA – was introduced in July 2014, radically changing the existing Cash ISA limit. It is more flexible and offers a much higher £15,000 annual contribution limit compared with the old Cash ISA. However the NISA take up rate so far indicates a lack of consumer enthusiasm – it has simply not proven to be a popular choice.
Older savers were among some of the hardest hit by the financial downturn as cash ISA interest rates plunged from around 5% to barely 1% by 2010. If you are retired, you are more likely to be mortgage and debt free. Therefore, the low interest rates introduced to keep down mortgage repayments and stimulate the economy would not have helped you. The value of savings for over 50s are eroded every year that inflation remains above the interest rates offered by your bank or building society.
If you’re looking for a way to invest in a more secure financial future, you’re certainly not alone. Research from Which? found that only 19 per cent of individuals surveyed said they trusted long-term financial products like pensions or investments. What’s more, one in four were planning to turn to their ISAs for income in the future.
However, despite the government’s efforts to introduce more attractive offerings, uptake on New Cash ISA products has been slow.
NISAs – The Benefits of New Cash ISAs
In July this year, Cash ISA rules underwent a series of dramatic changes in a bid to tempt savers:
- New ISA Allowance 2014 – the new cash ISA limit increased from £5,940 to £15,000 whilst the junior ISA maximum increased to £4,000
- The rule that only half of ISA savings could be cash was abolished, meaning you don’t have to worry about holding stock and shares if you don’t want to
- The rules also changed to allow people to switch providers more easily
You can find some more useful information about the changes on the New Cash ISAs factsheet available from the Gov.uk website.
While these amendments did spark some interest initially, with £5 billion deposited in July 2014, the initial enthusiasm was short lived. In fact, by August, the money invested in ISAs was down 15% compared to the same period in 2013.
A Slow Start for NISAs
This lack of enthusiasm could be caused, at least in part, by low cash ISA interest rates. According to This is Money, these have dropped by over a quarter in the last 12 months. Other barriers to uptake include the rules that apply to many ISAs and NISAs, limiting the number of penalty-free withdrawals savers can make each year. What’s more, when withdrawals are made over and above the allowance, the penalty can be high.
Which? found that of the 285 accounts available, more than a third (38 per cent) had conditions around access and eligibility, meaning that even if you’re keen to invest in a NISA, you may find that you don’t meet the eligibility criteria.
In response to the disappointing uptake on NISAs, the government is already considering alternative saving solutions, such as Peer-to-Peer lending ISAs and ‘pensioner bonds’. Whether these will prove more popular with older savers remains to be seen.
Be sure to thoroughly research your options before making any major decisions regarding your pension or long-term savings plans and don’t be tempted to rush into new schemes without understanding the consequences. Learn more about current accounts or some of the ISAs and NISAs that may be suitable for your circumstances with our Best Cash ISAs for Over 50s guide.
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