Scrap ISAs as most of the tax benefit goes to the rich?

grizzly1911

RenovationMan wrote: »

You seem to have changed your argument completely from warning me against having a traditional pension product because of all the fees, ripoffs and the costs of an annuity to stating that there is nothing wrong with a pension.

I can only assume that you've taken on board what I have been posting and you've modified your viewpoint. If that's the case then kudo's to you, I thought I was the only person on this particular board who has ever done that. :cool:

I haven't changed my stance.

Things aren't as good as they used to be.

I still think low value pension pots, through run of the mill schemes, are engineered more for the benefit of the provider. The "investor" takes the all the risk and pays all the fees.

Perhaps fees should be linked to long term performance, perhaps graduated over a certain threshold?

You are in an enviable position, I am in a lucky position loads more are being, have and will be shortchanged.

Without knowing you position in detail I merely suggested that you didn't count those chickens.

Seems you have an eyrie of Eagles to look forward to free to ride the thermals as they please.

RenovationMan

grizzly1911 wrote: »

I haven't changed my stance.

Things aren't as good as they used to be.

I still think low value pension pots, through run of the mill schemes, are engineered more for the benefit of the provider. The "investor" takes the all the risk and pays all the fees.

Perhaps fees should be linked to long term performance, perhaps graduated over a certain threshold?

You are in an enviable position, I am in a lucky position loads more are being, have and will be shortchanged.

Without knowing you position in detail I merely suggested that you didn't count those chickens.

Seems you have an eyrie of Eagles to look forward to free to ride the thermals as they please.

Hmnn, yes and when the seagulls follow the trawlers and all that....

There are 'run of the mill schemes' with every financial product. Lots of people have their money in low paying deposit account. Lots of people stay with the same mortgage company, even though their SVR is 2% more than standard, lots of people waste money in lots of ways. That's the reason for this website.

My 'enviable position' began by finding websites like this and taking the time to learn about my finances (and before that it was by buying investment & pension magazines once in a while). It's not rocket science to look at your current product and compare it with an alternative offering from a competitor.

The investor takes the risk but also takes the profits. The investor who takes the profits is usually the one who also takes the time to do his own research.

What we should be doing on here is helping each other increase our net worth, not trying to drag everyone down.

grizzly1911

RenovationMan wrote: »

What we should be doing on here is helping each other increase our net worth, not trying to drag everyone down.

For those that bother or have the inclination to find out I agree.

As part of balanced portfolio regularly revised to meet your own goals and aspirations and as long as the potential benefits, of the mediocre, are not oversold.

They are long term investment and by the time the penny drops, for many, it is too late.

wolfplayer

michaels wrote: »

Can anyone give a good fairness or economic arguement for keeping the uncapped isa system? Why not just limit the ISA benefit to 10k of savings or £x of tax relief?

Were any of your savings held in an ISA before you bought your home in 2010?

My house savings are stuffed in my ISA, after maxing out the limit for years, now earning a fair bit of tax-free interest against falling house prices.

You can get rid of ISAs after home owners have to pay an annual property tax.

wolfplayer

Generali wrote: »

I think ISAs should be scrapped as there is no good reason for people to pay tax on their savings when they already paid income tax on the money they saved!

The interest on ISAs is often higher than normal savings accounts, encouraging people to save, up-to a certain limit each tax year.

Abolishing tax on all savings accounts, and probably the banks and building societies would lower the top rate you can get. Up until they might be forced to compete for savers funds again, if QE is ever halted.

I think it's the debtors and the mortgaged home owners, and those no longer in a good position to save a few thousands pounds each year, who are now banging the anti-ISA drum.

michaels

Personal disclaimer: Mr and Mrs Michaels earned about 2600 on our instant access cash isas last year, assuming that it had all just been savings in my name the tax would have been about £1000.

wolfplayer wrote: »

Were any of your savings held in an ISA before you bought your home in 2010?

My house savings are stuffed in my ISA, after maxing out the limit for years, now earning a fair bit of tax-free interest against falling house prices.

You can get rid of ISAs after home owners have to pay an annual property tax.

michaels

Thanks for your thoughts.

princeofpounds wrote: »

I think all the arguments 'against' your post so far are very good and focus mainly on fairness. To recap:

- The tax relief is quite trivial.My argument is that whilst the value for one year of one years' allowance is indeed small the total over a portfolio of Tessas and Isas can become quite large.
- The people who benefit most are not the rich, but rather the comfortable who can put enough by to fill up ISA allowances, but no more.But surely the tax system should not be rewarding the rich and the comfortable at the expense of those who will never be abel to save such sums?
- The amounts are capped, annually at least.
- The benefit is universally accessible to anyone who has savings.

But I think there are other points relevant to the precise questions you are asking.

The question of fairness might be a red herring.

The rich already pay more tax and the poor are net recipients, so even if you accept redistribution is how things should be for the entire system in aggregate, it does not logically follow this is how it should be for every tax/benefit in existence. I can't argue with this

If the system achieves progressive goals as a whole, that is what matters for society. Otherwise it's a bit like saying that because scoring goals is a good thing in football, each and every player should be a striker.

The next point is that if we accept that savings in a society is a good thing, that we don't do enough, and that government encouragement is required (or at least the removal of government discouragement), then BY DEFINITION this encouragement can only be given to people who can generate savings in the first place. Why do we think the market will not acheive an optimal level of savings without state intervention - VAT already mitigates towards saving rather than consumption

It is impossible to create a savings tax relief which is not regressive. You can lower the limit at which it is capped perhaps to limit the regression. I agree

Let's say we lower it to £1, so that almost everyone who can beg on the street for an hour can benefit. However, this will totally fail in its OTHER objective of promoting saving because in reality the sum raised in savings will be irrelevant.

The more regressive the tax is, the better it is at achieving its function of incentivising savings (up to a point - there is an argument about diminishing returns in terms of increased savings for each 'unit' of redistribution'sacrificed', but that is a side issue about where to draw the line, not a general problem).Agree but it depends whether the objective is to maximise the total amount of savings or to achieve a savings safety net for as many people as possible.

Finally, I won't drone on about the economic argument and may return to it in more detail later, but in brief the amount of investment (as opposed to consumption) a country does it equal to the amount of savings generated. Britain is underinvested and overly consumer-led in its economy and savings rates are low (so low in fact that they have been strongly negative for years.... i.e. that means we built up a lot of debt which we all know is unsustainable). Unless you believe that we are fine on the debt front, which would be a minority opinion. Again this seems to suggest that for some reason the market is not getting the balance between savings and investment correct - why not?

So in practical terms promoting savings IS likely to be a good thing for the economy. Although that's a separate question as to whether an ISA structure is a fair way of going about that.

So, to summarise:

1) Looking at 'progressive' fairness on the level of an individual tax policy is a red herring, because it is the aggregate system that matters in terms of redistribution of wealth.
2) Some taxes and tax breaks are designed not to achieve redistribution but influence other behaviours.
3) Encouraging savings is one such tax break where it is impossible for it not be regressive.
4) Minimising that regression is not possible without making the tax a failure for its primary purpose.
5) And, as a separate issue, generating more savings in the economy is likely to be a positive over the long term because we have been dis-saving for too long and built up too much debt as a result.

Ultimately, what you have to realise is that redistribution of wealth is not the only objective of a tax system (and may not even be the primary objective).

I have posted elsewhere on my contention that income inequality and over-saving are the root causes of the credit crunch so we had better agree to disagree on this one.

grizzly1911

wolfplayer wrote: »

You can get rid of ISAs after home owners have to pay an annual property tax.

We already do called Council Tax based on the relative value of property.

A very similar recovery method was called Rates in years gone by.

You could call it Popcorn Tax if you want.

It is still part of the overall tax take of the country, the same as paying a Parking Tax when you leave your car on a Council Car Park or a Swimming Tax if you go to the Council Leisure Centre.

grizzly1911

michaels wrote: »

Thanks for your thoughts.

Curious as to how you equate over saving to the credit crunch?

princeofpounds

My argument is that whilst the value for one year of one years' allowance is indeed small the total over a portfolio of Tessas and Isas can become quite large.

I am after the Tessa generation, so I don't know anything about that.

Anyway, I was just recapping arguments already stated; this wasn't the main purpose of my post. The benefit can become 'quite large', but not that large at current interest rates. Depends on your view of large I suppose.

But surely the tax system should not be rewarding the rich and the comfortable at the expense of those who will never be abel to save such sums?

Well, on the level of the system I think you could make a good case for that. But the tax system as a whole is very redistributive already. So the argument doesn't apply to any individual tax, which was I guess the summary of my whole post.

Of course, if redistribution is a goal and an individual tax is contrary to that, you would expect there to be another objective that the tax does help to meet.

Why do we think the market will not acheive an optimal level of savings without state intervention - VAT already mitigates towards saving rather than consumption

Well you are appealing to my libertarian side here, but given that we don't live in a free market for money, seeing how interest rates are set by decree, I don't think there is any great reason to believe that savings rates are optimal (and the current economic mess kind of proves that they weren't).

An open question as to whether we should be generating state interference to deal with the adverse consequences of state interference, but realistically I don't think we are going to see a change in our monetary system any time soon. And I'm not sure a change would be for the better in any case.

Agree but it depends whether the objective is to maximise the total amount of savings or to achieve a savings safety net for as many people as possible.

Both perfectly valid objectives I guess, and not necessarily conflicting. ISAs get you some way towards both.

Again this seems to suggest that for some reason the market is not getting the balance between savings and investment correct - why not?

See my point above re the pricing of money. As a good a reason as any to start from the assumption that savings rates are distorted.