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ISAs have failed low income workers with inadequate savings and only benefit people who would have saved anyway, a think tank claims.
Over half of households in the UK have poor savings levels and 50% of low-to-middle earner families have less than one month's income saved, the Institute for Public Policy Research (IPPR) said.
The IPPR said the government must scrap ISAs and create "Lifetime Bonus Savings Accounts" to help lower earners save, after the Treasury hinted at future support for workplace ISAs.
The government should pay annual bonuses into these accounts on a sliding scale dependent on the average balance in the account over the past three years, the think tank proposes.
In its latest report, Designing a Life-Course Savings Account, the IPPR said the government should pay £1 for every £10 on the first £1,000 saved, £1 for every £20 on the second £1,000 saved, and £1 for every £30 on the third £1,000 saved.
Bonuses would not be paid on savings above £3,000, the report said, and more than four withdrawals a year would lead to bonuses being forfeited.
The IPPR said this account should be exempt from means tests for state benefits, and savers should be able to make deposits at supermarket tills.
"The current tax relief given to higher income earners could be withdrawn without reducing their propensity to save," said Nick Pearce, IPPR director.
"Instead, these funds could be used to increase saving by low-to-middle income families and boost aggregate saving to improve the UK's saving ratio at no extra cost to the government."
The IPPR research comes amid calls for a closer link between pensions and ISAs and a stronger role for corporate ISAs in encouraging saving.
Last week, the Treasury announced it would not investigate further the use of early access to pension funds, but will encourage new forms of workplace savings, taken by many to mean support of corporate ISAs.
Ros Altmann, director-general of Saga, has repeatedly said NEST should not be restricted to a pension, but should also include an ISA for investors afraid to lock away their savings until retirement.
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wake up and smell the coffee
Low earners can't afford to save, they have the same issues as middle income earners, family, holdiay, food, fuel, education etc with less to cover the essentials, REMEMBER Stakeholder was to be taken up by the '000s of "poor" and low paid, never worked did it, why on earth do they think they will start to save when they live month to month currently. Come on get real!
Posted by: Fraser Brydon
SAVINGS
How much do these "state the bleedin obvious merchants" at these publicly funded think tanks get paid. If cuts are to be made then get rid of these parasites. And Simon ..... I suggest you do go (sorry, even though there is no charge for this advice there is no fact find or compliant reason why letter) as you are showing far too much common sense. Common sense is an athema to all those with any real influence and say in this industry. It will cost them far too much money and conversely save the industry too much money if common sense was applied. No one can afford to do that for goodness sake!!
Posted by: Geoff Pollock
Why re-invent the wheel
AS I understand it Fidelity and AEGON(using Novia) are currently trialling work place ISA. The barrier for many to saving (in my opinion) is a mixture of affordability and ease of access/opening without a 3 hour interview from Billy or Jane at the bank who wants to seel you something else. Why not give the work place ISA (hopefuly a cash & S&S available) idea a bit of time to see how it works before adding yet another "product". I wanted to do workplace ISAs in 2001 when we were doing a lot of work with local employer's, but couldn't find a provider set up for it at the time. Now they are finally getting round to it, re-inventing the wheel seems a bit extreme cost wise.
Posted by: Phil Castle
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ISA's have failed
I wonder how much was spent on thinking this one up !! Granted for the low earners it could possibly work however I would like to take these people to meet some employees in the real world who I speak to about pension funding !! The word speak to is as far as it gets because most of these people can ill afford to eat let alone save even it is assisted by a generous employer. Leave ISA's alone ................ after over thirty years in this profession I am beginning to think it might be time to leave......
Posted by: Simon Rice