More than 3m pensioners keep all of their ISA savings in cash, a Freedom of Information request has revealed.

The FOI request was submitted by pension consultancy LCP which called the figures “alarming.”

The revelations back up recent concerns that many people have removed large sums from their pension pots in recent years since the Pension Freedoms were introduced and stashed the money in low-interest rate cash accounts.

The ISA data for 2018/19 (the latest year available) revealed that 3.4m over-65s hold an average of £25,383 each exclusively in cash ISAs.

The amount of cash-only pensioner savings in these low-return ISA cash accounts is £87bn. The calculations do not include a further 1.3m pensioners who have a mix of cash and stocks and shares ISAs.

The data showed the average over-65 ISA holding was around £52,500.

The FOI request uncovered that 5.8m over-65s hold ISAs with total ISA savings of just over £305bn. 

LCP partner Steve Webb, who submitted the request, has warned that the current high rate of inflation - currently 5.4% - will “savage” the value of savings held in low-pay ISA cash accounts, most of which pay 1% or less with some paying as little as 0.1%.

Sir Steve, a former pensions minister, estimated that inflation would reduce the spending power of ISA cash savings held by pensioner by over £3bn in the next year alone.

For each pensioner, this is an average loss of over £1,100 in spending power in the next year, says LCP.

Sir Steve Webb said: “While holding small amounts of cash in an easy access account can be convenient, these figures show that huge amounts of money are sitting rotting in cash ISAs.  Inflation is like a tax on savers. With inflation soaring, the spending power of cash savings is being savagely reduced.  

“Many instant access cash ISAs pay little or no interest and runaway inflation will take a huge chunk out of the value of these savings. Older savers need to consider urgently whether keeping their money in these cash accounts is the best way to protect their hard-earned savings, especially when the real value of their state pension is also being squeezed”.

Out of the total of 3.4m pensioners there are slightly more female (1.8m) than male (1.6m) pensioners, though average balances for both groups are similar at just over £25,000 in each case.  

Women over 65 are, however, slightly more likely than their male counterparts to have very large cash-only balances, with 293,000 women with £50,000 or more in cash compared with 273,000 men.