State pensioners with savings warned they have hours to act before Budget

State pensioners with savings are being told to quickly maximise their ISA allowances before Wednesday’s budget.

Labour is set to present its first Budget this afternoon following their General Election win in July. Chancellor Rachel Reeves is expected to introduce a raft of schemes, plans, hikes, and changes to 'restore economic stability' in the UK - amid allegations the previous Conservative Government left behind a £22 billion black hole in 'unfunded pressures'.

And now financial experts are advising people with savings to act before a potential change to ISAs is implemented. ISAs - or individual savings accounts - allow people to protect their money from being taxed.

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It can be a traditional savings account that pays interest or it may be a stocks and shares ISA, in which a person can invest and have those investments shielded from tax.

Currently, if you put away your State Pension income into a savings account, and that account then generates interest, you can be charged tax on the interest.

As it stands, savers can earn £1,000 in interest before they have to pay tax at 20 percent on every £1 above £1,000. This is known as the Personal Savings Allowance.

If you saved £20,000 at 5 percent, you would generate £1,000 interest in just 12 months and be liable to pay tax on any interest over £1,000. And, if you put just £10,000 into a two-year fix at 5%, you would also generate enough interest in that time to owe tax because it would be paid in a lump sum at the end, according to The Express.

But, if you put the money in an ISA, the interest is protected from tax. The annual ISA limit is £20,000, which can be distributed across various ISAs but must not exceed the total cap.

However, there are growing fears among money experts that Labour might propose changes to ISA rules in the upcoming Budget on Wednesday afternoon. Sarah Coles, Hargreaves Lansdown's Head of Personal Finance, said: "It's worth noting that last year the Resolution Foundation, a research organisation that seeks to improve living standards for those on low and middle incomes, called for a lifetime cap on ISA savings of £100,000.

"Whatever happens in the Budget, now could be a good time to secure this year's ISA allowance. Anything you've already paid in, or you pay in today, will be sheltered from UK income and capital gains tax."

The introduction of a lifetime ISA cap of £100,000 would drastically reduce the opportunity to benefit from ISA tax allowances, limiting individuals to just five years of maximising contributions, as opposed to the indefinite yearly potential previously available.

Meanwhile, Lewis Broadie, Savings Expert at NatWest, cautioned against rash financial moves but advised keeping an eye on any ISA updates that may emerge from the Budget discussions.

"Recent research, conducted by NatWest, found that almost seven in ten (69%) savers expect to earn interest on their savings this year and could be eligible to pay tax on the interest they earn," he said.

"With this in mind, it is definitely worth keeping an eye on any changes to the landscape and making sure you're informed on the latest rules around contributing to your ISA."

The annual statement, outlining the Government's future spending plans, will take place at 12.30pm on Wednesday (30 October).