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"The current tax relief given to higher income earners could be withdrawn without reducing their propensity to save," said Nick Pearce, IPPR director.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.
What made financial headlines over the weekend?
UK economy falters
More launches planned for 2019
£50,000-plus 'earned' from steelworkers
'Not convinced of merits'