ISAs should be made tax-free to kick-start a culture of savings and help people prepare for retirement, says Fidelity.
The fund house says making ISAs completely tax-free is the only viable way of encouraging more people to save and is calling on Chancellor Alistair Darling - who publishes his Pre-Budget Report next week - to make the change.
Fidelity's call to action follows research suggesting a huge 95% of the population do not fully understand the advantages of ISAs.
Changes to the product's tax-efficiency have added unnecessary layers of complexity to the ISA, says Fidelity, which has detracted from its popularity.
"Would-be savers are being put off by the perceived complexity of the once simple product - only a third of the people we surveyed thought the cash ISA tax advantages are worth it and this figure dropped to one in 10 for stocks and shares ISAs," says Gary Shaughnessy, UK managing director at Fidelity International.
"We need to make ISAs simple again to bring back their appeal and get away from the current situation where the value of the tax benefit varies with the asset class you are invested in."
Fidelity research suggests that only 30% of the adult population are making the most of their ISA accounts. Last year there were 14 million ISA accounts open in the UK.
"So, with strong support from IFAs, we once again call upon the Chancellor to go one step further and make ISAs fully free of all income and capital gains taxes and restore the dividend tax credit as a way to immediately boost ISA income, especially for basic rate tax players and encouraging new saves," says Shaughnessy.
Shaughnessy adds the recent increase in the ISA limit to £10,200 was a positive development and Fidelity had seen a four-fold increase in volumes from the over 50s in the first month since it came into effect.
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