Savings: Gateway will create 'nest eggs' for those on benefits

A savings scheme for the less well-off was agreed yesterday, which will see it match the monthly savings of those on lower incomes to the tune of up to £300 a year.

The "Savings Gateway", which is designed to encourage families on low incomes to put away a little bit of money each month, has been piloted twice in the past six years – in 2002 and 2005 – and will be rolled out nationally in 2010.

Anyone receiving working tax credits, income support, jobseeker's allowance, severe disability allowance or incapacity benefit will qualify to take part in the scheme, as well as parents receiving child tax credit at the maximum rate. The accounts are expected to be offered by most high street banks, with all contributions matched by the Government up to a maximum of £25 a month.

It has been broadly welcomed by the financial services industry. However, Adrian Coles, the director-general of the Building Societies Association, said the Government should consider extending it to allow as many people as possible to benefit. "We hope the Government can be persuaded to increase the size of the market by allowing as many people as possible to participate, not just those on benefits or tax credits," he said. "A high match rate will also be needed to maximise saver participation."

Kevin Mountford, the head of savings at price comparison site moneysupermarket.com, criticised the timing of the project. "To announce a Savings Gateway incentive for 2010 is a joke," he said. "If the Government was serious about boosting national savings, it would act now rather than in an election year.

"Other savings initiatives such as Child Trust Funds and ISAs have a good uptake amongst Brits but this idea will only apply to a small part of the population."

Meanwhile, the Government reiterated its intention to increase the ISA allowances from next month – raising the maximum amount that investors can put invest tax-free from £7,000 to £7,200 from 6 April. Savers will also be allowed to put up to £3,600 into a cash ISA, up from the current limit of £3,000, while balances in cash ISAs will also be permitted to be transferred into an equity ISA for the first time.

Mr Coles added it was disappointing the Government would not allow transfers the other way – from equity ISAs into cash ISAs.

One additional benefit for investors was a commitment to allow people who own foreign shares to claim the dividend tax credit, in the same way that they can on UK-listed shares.

Also, the annual limit for investing in Enterprise Investment Schemes – which help shelter investors' money from capital gains and income tax – was increased from £400,000 to £500,000.

Changes to the capital gains tax (CGT) rules will go ahead as planned next month. Although it will see the headline rate of CGT reduced from 40 to 18 per cent, it will also see the end of taper relief, which allowed investors in some companies to pay as little as 10 per cent, if they held their investment for at least two years.