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Before and after tax plans aim to simplify savings

A former managing director of Merrill Lynch is calling for simplification of the savings industry and the removal of reliance on Government subsidy as a way of solving current savings problems.

Charles Jackson, in a pamphlet entitled, Saving Savings: How to Promote Personal Investment, published by thinktank Politeia says present obstacles to saving, including high costs, tax, regulation and inflexibility, could be swept away by the introduction of two simple, clear schemes.

His proposal includes a before-tax scheme which would allow people to save income free from tax, as they can now in pension schemes, and pay income tax when they withdraw money.

The after-tax scheme would allow savers to save out of tax-paid income and withdraw without further tax liability, as is currently the case with Isas.

A saver would be allowed to invest in either scheme or both and could withdraw savings or invest them whenever they want. Investments in the schemes would be free from income and capital gains tax.

Jackson says the problem with current Govern-ment and Opposition initiatives, such as the child trust fund or lifetime savings account is they rely on subsidy. Jackson claims this puts unnecessary constraints on savings because of Government concerns over expense.

Jackson says that subsidies add to the problem of savings cannibalisation, with people moving money into subsidised savings accounts but not increasing the amount they save. He says an increased savings culture can only be introduced by replacing subsidies with simplification.

He says: “Rather than attempting to solve the problem by inducing people to save more by subsidising them with their own or other people’s money, we should solve the problem by minimising the obstacles to saving and relying on savers’ enlightened self-interest to do the rest.”

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