PER­SONAL AC­COUNT

The Daily Telegraph - Your Money - - MONEY - Marc Sid­well

Three steps the Chan­cel­lor should take for a sim­pler, fairer sav­ings regime

With only weeks to go un­til Philip Ham­mond’s pre-Brexit Bud­get, at­ten­tion is on where the money-hun­gry Chan­cel­lor will turn to bring in more tax rev­enue. But Mr Ham­mond also has the chance to of­fer a fresh eco­nomic vi­sion for a newly-in­de­pen­dent Bri­tain. One place he should start is the sim­pli­fi­ca­tion of sav­ings.

The cur­rent sav­ings land­scape is a com­pli­cated mess. In­di­vid­ual sav­ings ac­counts (Isas) have mul­ti­plied from a rel­a­tively sim­ple, well-un­der­stood prod­uct into a thicket of op­tions, with six dif­fer­ent types. This cre­ates plenty of work for per­sonal fi­nance jour­nal­ists, but for the av­er­age saver it is con­fus­ing and dis­cour­ag­ing – and the na­tion’s cur­rent low sav­ing rate re­flects that.

There is broad sup­port for Isa sim­pli­fi­ca­tion, although much of it has been fo­cused on abol­ish­ing the Life­time Isa (Lisa). In March, the As­so­ci­a­tion of Ac­count­ing Tech­ni­cians’ Isa work­ing group pro­posed clos­ing the Lisa and cre­at­ing an “ev­ery­thing Isa”. In May, the Of­fice of Tax Sim­pli­fi­ca­tion (OTS) crit­i­cised the Lisa and stated “the range of types of Isa can be con­fus­ing”. In July, the Trea­sury Se­lect Com­mit­tee also called for the Lisa’s abo­li­tion.

This Fri­day, how­ever, the Govern­ment re­sponded to the Trea­sury Com­mit­tee by say­ing that the Lisa was a “key part” of its com­mit­ment to savers at all in­come lev­els and life stages. With Lisa abo­li­tion off the ta­ble, what op­tions for sav­ings sim­pli­fi­ca­tion are left?

As it hap­pens, the Bright Blue think tank has just pub­lished a Lisafo­cused pro­posal from pen­sions ex­pert Michael John­son, who wrote the orig­i­nal pol­icy pa­per which in­spired the Lisa.

Mr John­son’s new pro­posal is sim­ple but pow­er­ful. Rather than see­ing the Lisa’s very real prob­lems as a rea­son to aban­don it, he pro­poses three moves that will trans­form it into a truly uni­ver­sal so­lu­tion.

First of all, re­move the Lisa’s ill­con­sid­ered with­drawal penalty. Set at 25pc, it amounts to a 6.25pc penalty on with­drawal in ad­di­tion to the re­turn of ac­crued bonuses. Re­duc­ing this to 20pc is enough to solve the prob­lem.

Sec­ond, re­move age re­stric­tions. The Lisa has limited take-up for now, but it can only be opened be­tween the ages of 18 and 40. Mr John­son sug­gests al­low­ing a Lisa to be opened at birth, and set­ting no up­per age limit – although re­quir­ing those aged over 50 to hold an ac­count for 10 years be­fore with­drawal. At a stroke, this re­form would al­low the Lisa to re­place Ju­nior, cash, and stocks and shares Isas. Mr John­son rec­om­mends scrap­ping the In­no­va­tive Fi­nance Isa and al­low­ing the Help to Buy Isa to ex­pire at the end of next year as planned, turn­ing the cur­rent jum­ble of six Isa prod­ucts into one sim­ple, uni­ver­sal, tax-pro­tected sav­ings ac­count.

Third, and most in­ge­niously, Mr John­son sug­gests al­low­ing au­toen­rol­ment pen­sion con­tri­bu­tions by em­ploy­ees (as op­posed to

As the Chan­cel­lor pre­pares his Bud­get, he should of­fer savers more free­dom

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