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BUDGET 2010: Isa limits to rise annually with inflation

Chancellor Alistair Darling has announced that Isa allowances will increase annually with inflation to encourage savings.

In the Budget today Darling confirmed that from next month the annual Isa limit will rise from £7,200 to £10,200 for all savers, of which half can be saved in cash.

He noted that since their introduction in 1999, Isas have saved the public over £270bn.

Based upon the Chancellor’s estimated inflation rate of 2 per cent for the next year, this means the ISA limit will be 10,400 from 2011/12. If inflation continues at this rate in future, the Isa limit will be approximately 1,000 higher at 11,200 within 5 years.

Standard Life head of pensions policy John Lawson says: “Isas are a popular and flexible way for people to save for both short and long-term needs. This is a welcome announcement coming on the back of the increase in ISA limits this year. ISAs will assume greater importance for retirement funding, particularly among higher earners as a result of restrictions to pensions tax relief first announced in the 2009 Budget.”

T Bailey head of communications Philippa Gee says: “Isa limits in real terms fell away badly  after their introduction in 1999 thanks to inflation erosion. The hike in Isa limits, and the commitment to increase them in line with inflation going forward, should incentivise saving and make Isas an increasingly  valuable tool, particularly for those who use them in conjunction with pensions, for retirement planning. Tax squeezes elsewhere will make pensions less attractive to a significant number of investors and Isas will become more important for many.

“The fact remains that interest rates are low and unlikely to change dramatically in the short term, depending on the election.  This increase will at least help investors to improve the return on their investments by increasing automatically the amount that can be sheltered free of tax. The Isa is here to stay – ignore it at your peril.”

IMA chief executive Richard Saunders says: “The Isa is and should remain the key non-retirement savings vehicle for all.   We therefore welcome the Government’s announcement that the limit will  increase each year in line with inflation.

“We shall continue to  discuss with the Government how it can build on the strength of the ISA brand  and the simplification of the pensions landscape to create a coherent savings  scheme for all, providing instant access, limited access and retirement  income.”

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