Gordon Brown has hinted that he could raise the tax-free ISA allowance to help pensioners hit by plummeting savings rates.
Following six consecutive base rate cuts, savings rates now stand at their lowest ever level, with the average branch-based notice account now paying just 0.18%.
The picture is even worse for current account and instant access savings account holders, who now earn an average rate of 0.17%.
This has proved a hammer blow to pensioners reliant on savings income to make ends meet each month.
ISAs to be ‘made more attractive’ for pensioners
During an interview on a BBC Radio phone-in, the Prime Minister was accused by one pensioner of neglecting the elderly, to which he reportedly replied:
“We are looking at how the ISA can be made more attractive for the future, particularly for people like you.
“We are trying, obviously, to make sure in an era of low inflation that the incentives to save can remain high.
“These are the things that we're intent on doing. I think in the budget you will see some announcements.”
Industry would welcome proposed move
Scottish Widows savings and investments head Gordon Greig believes any decision to increase the ISA allowance for pensioners would certainly prove welcome.
“There are currently not enough people taking advantage of this tax free allowance,” says Greig.
Research from the third annual Scottish Widows Savings and Investments Report reveals that, despite the vast majority (72%) of people wanting to start saving for the future, three out of five (60%) people do not intend to take advantage of the tax breaks that currently exist.
Need further incentives
According to Greig, an increase of the allowance would further incentivise people to take advantage of ISAs.
"Over half (56%) of those who already have a Cash or Equity ISA stated that the reason they save into an ISA is because of the relative transparency -you can see exactly what return you have made on your hard earned cash,” he adds.
“Everyone who is able to put some money away should be taking advantage of their ISA allowance in 2009 - it's tax-free, simple, and an ideal place to start saving for the future, even if you haven't managed this in the past. "
