Shadow chancellor Oliver Letwin MP has published a consultation paper on savings taxation which suggests re-establishing the dividend tax credit for pension funds along with tax credits for offering financial advice could restore confidence in savings.
Details of the sixth consultation paper, entitled Tax on Savings: A new direction, suggests, alongside previous proposals for the introduction of the Lifetime Savings Account (LiSA), confidence in the savings culture could be encouraged by raising the tax-free annual Isa limit to £9,000 - at a cost of £100m to the Treasury – and by shifting the gross deposit limit to net so anyone who withdraws £1,000 in a year so they can still contribute £3,000 from an overall deposit of £4,000.
Letwin also suggests a cut in the income tax on savings income – on amounts between £6,765 and £36,145 - from 20% to 15%, 10% or 5% - at a maximum cost of £1.2bn to the tax coffers - might make it more attractive to save.
Similarly, the Conservative Party suggests employers ought to be offered tax credits in return for pension contributions to occupational schemes and the provision of financial advice for their staff, at a cost of around £5m to the government.
Called the Workplace Advice Credit, similar to that advocated by the ABI, the tax credit would allow employers to claim back 50% of the cost of a two-hour employee financial healthcheck every five years when delivered by an independent intermediary.
The Pension Contribution Tax Credit – similar to that proposed by the ABI and NAPF – would also generate a National Insurance Contribution saving of around 1% to employers if:
And along with proposals for tax reforms, the Conservative Party also published its latest thoughts on the withdrawals from the LiSA, following consultation with the industry in July, which suggest “lifecycle” withdrawals from the fund would be subject to a three-month notice period to prevent “frivolous withdrawals” and keep transaction costs low.
In any circumstance where money is withdrawn, the government would also cease matching contributions until the amount withdrawn is replaced, says the report.
Individuals holding a LiSA would then be able to withdraw all of the accumulated savings along with “the average amount of Government match” as a lump sum every ten years, according to Annex 1 of the consultation.
Further detail of the report argues since Labour came to power in 1997, the national savings average has fallen from almost £10 in every £100 of income to just £5.50 in every £100, compared with an average £12 across the EU.
Moreover, whereas Tony Blair is quoted as saying – in a letter cited on the National Pensioners Convention website – in September 1996 he wanted to “end means-testing for pensioners once and for all”, the Tories point out in this consultation 46% of the pensioner population are now means-tested for the Pension Credit and financial advisers are wary of advising pensioners on this matter for fear of future mis-selling allegations.
Anyone wishing to respond to the consultation has just three weeks to do so, as submissions must be entered by 31st January.
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