Comment: stop trying to force pensioners and savers to take on more risk
With numerous schemes encouraging Brits to take risks with their hard-earned cash, Katy Ward argues that caution is no bad thing.
When it comes to investments, we all have a certain appetite for risk.
Some are willing to take a loss if they are lucky enough to do so.
Perhaps they have the funds to miss out on potential wins.
Many of us aren’t fortunate enough to be in this position and need to be more careful with our investments.
After all, it’s only natural for certain savers to be more conservative than others.
In this article, I look at the ways Brits are being encouraged to take excessive risks with the vital cash cushions so many of us rely on.
This could mean jeopardising the money that has potentially taken people a lifetime to accumulate.
How much the State Pension pays in 2025
Pensions ‘mega funds’… and the impact for retirees?
One of the most notable developments is the Government’s plans for pension funds and what this could mean for savers.
Back in November 2024, the new Labour Government announced a policy to unlock £80 billion of investments.
In a speech at the City’s Mansion House, Chancellor Rachel Reeves said she intends to merge 86 public sector council pensions into so-called ‘megafunds’.
These will be run by fund managers.
This move would include leveraging the large pool of pension money to fund infrastructure developments across the country.
This initiative is part of a broader "Pensions Investment Review" aimed at boosting economic growth.
Unnecessary risk with retirees’ cash?
Critics believe pension savings could be at risk as a result of Reeves’ move.
Many argue that merging investment in the UK and retirement funds involves unnecessary danger for investors’ cash.
I’d certainly agree with this stance! We can’t – and shouldn’t – gamble with people’s financial lifelines.
Funding for ‘pet projects’?
Some critics also say the Chancellor sees pensions as an inexpensive source of funding for her favoured projects.
Likewise, many naysayers point out the UK’s abysmal record when it comes to dealing with large infrastructure projects.
Others have pointed out the scheme could risk the closure of small but well-performing pension schemes.
You can read more about pensions mega funds in this article here.
Cash ISAs under threat
The Government has also issued a plan to make Cash ISAs less attractive, branded as ‘questionable in intent’ by investment trading platform 212.
This represents a massive threat to one of the staple savings mechanisms in the UK – and one of the only ways to shelter cash from HMRC.
During a meeting at the beginning of February, City bosses asked the Chancellor to relax the tax breaks on these products.
Slashing the annual allowance?
According to suggestions from city leaders, the £421 billion currently held in cash ISAs could be put to better use if shifted to investments.
They apparently argued the Government could slash the annual allowance (currently £20,000) to encourage more savers into investments as another way to save.
The data found the average amount held in a cash ISA during the 2022/23 tax year was £16,000, £4,000 below the threshold.
The Chancellor did not openly reject the notion, reports have stated.
Again, this potentially pushes financially cautious people into a situation with which they may not be comfortable.
Opinion: why you’d be mad to overlook ISAs for your savings
A financial safety net
While city bosses are worried about the tax incentives of cash ISAs, the benefits to savers are clear.
In many cases, these products offer rates above alternatives available from conventional savings accounts.
At present, the most attractive deal is on an easy access account from Trading 212, which offers a return of 5.03% on unlimited penalty-free withdrawals.
So, what’s the solution?
Financial services firms and city bosses need to recognise that many people simply aren’t in a position to take significant risks with our savings.
Likewise, some people simply find investing too unsettling from a psychological perspective.
Although the stock market may bring greater advantages than holding funds in cash, it isn’t for everyone.
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Have your say
How much risk are you comfortable taking with your savings? What do you make of the apparent threat to cash ISAs?
We’d love to hear your comments below.
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