Taxes and charges make savings decisions difficult, suggests IFS
22 Feb 2016
The Institute for Fiscal Studies (IFS) has suggested that individuals face a complex and ever-changing range of tax treatments, which can make it difficult to select the most appropriate savings vehicle.
Additionally, the IFS claims that pensions are set to remain the most tax-efficient savings option, despite forthcoming changes to personal taxation.
This may be partly due to the fact that, under the pensions auto-enrolment scheme, employers must match any employee contributions. This has resulted in a potential boost of up to 60% to workers’ pension pots, the IFS reported.
The Institute compared saving via a pension to purchasing a house, paying into an ISA, and investing in buy-to-let property.
The report also considered the changes to dividend taxation and the introduction of the new Personal Savings Allowance (PSA), alongside any potential changes to pension taxation.
Furthermore, the IFS found that minor differences in charges can outweigh the effects of certain tax treatments.
Stuart Adam, co-author of the report, stated: ‘The last few years have seen radical changes announced to the taxation of savings. These will take millions of people’s savings out of the tax net altogether. Ideally, people might make savings decisions based on the underlying risks and returns of different assets. But taxes and charges can significantly change the relative attractiveness of different savings options. If people are unsure about how taxes and charges might change, their decisions become even harder’.