Low earners will have to wait some time yet before the government comes up with a proposal that woul...
Low earners will have to wait some time yet before the government comes up with a proposal that would show it clearly benefits them to save, says Chartwell.
In a letter to Gordon Brown sent out in April, the IFA firm argued that many low earners are faced with a choice between the tax advantages of a pension and the flexibility of an ISA, adding that these two saving products are not ideal on their own.
It also put forward a suggestion of a new savings vehicle combining the benefits of these two options by granting people a bonus every five years instead of giving immediate tax benefits.
In a response to this, David Dodd - working at the Inland Revenue's department of Savings and Pension Policy - says the government believes that new measures it is proposing will suffice as it "will help people to make informed choices about retirement, so they can plan to save in accordance with their preference and circumstances".
Following the government's proposals - including a radical simplification of the tax system, and improved information and education about pensions and the financial system - Dodd says:
"The idea is that in the early years, when liquidity of savings is often of prime importance, clients could be sold an ISA. Later, once the prime saving needs have become more long term, the funds in this ISA could then be transferred across into a tax approved pension product."
This approach gives the same benefits as would Chartwell's idea, Dodd adds but "without the need of introducing a further savings product".
But Chartwell - even though welcoming the proposals - believes they don't go far enough to encourage people to save, and says that the government "still have some way to go on this matter".
"It does appear that it might take them some time to get there", Chartwell adds.
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