| Chancellor Gordon
Brown announced in his July Budget the impending
arrival of a new tax efficient savings and
investment vehicle, an ISA - an Individual
Savings Account. This new product, to be
available from April 1999, would replace existing
PEPs, Personal Equity Plans and TESSAs, Tax
Exempt Special Savings Accounts. Mr Brown stated
that it was designed to make savings and
investment more appealing to people who had not
saved in the past; that it would accommodate the
savings and investments of those who had saved;
that it would be easy to understand and that it
would cost the Government no more than existing
arrangements. Some days later in the House of
Commons, Mrs Helen Liddell, Economic Secretary to
the Treasury, seeking to reassure people of the
positive nature of the new concept, stated that
the ISA would be as attractive as PEPs and
TESSAs. Ah, well. After five months of initial
consultation with industry trade bodies and other
key players the Government has issued its
Consultative Document on ISAs. The concept
unveiled reveals a sweet and sour cocktail. It's
likely to induce an immediate hangover amongst
those who have demonstrated a propensity to save
in the past; imminent nausea for those who have
just got into the savings habit; a vile headache
for independent financial advisers and those who
currently manage PEPs and TESSAs who might seek
to offer easy transition into ISAs and only a
modest fizz for those starting out and embracing
the ISA as their first medium to long term means
of accumulating wealth.
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A £50,000 maximum
transfer opportunity is well below what some have
accumulated to date - it also denies the prospect
of future savings opportunities as that is the
proposed lifetime ceiling as well. The savings
habit is clearly only to be encouraged amongst
those who currently do not save. Those who do,
apparently need little or no incentive. PEPs have
over recent years increasingly become the low
cost, tax-efficient method of repaying a
mortgage, boosting retirement income, preparing
for long term care and planning for higher
education costs, but even though 60% of PEP
investors are standard rate tax payers, the
annual savings limit of £5,000 ensures that
savings with Government 'encouragement' may go
only so far.
The good news is that 50 people a month will
win a £1,000 prize to boost their savings. In
addition, provided your account is below the
£50,000 ceiling, you may have the opportunity to
add to it at one of the major supermarkets.
Bearing in mind the investor protection
'disclosure' requirements, would those who want
to add to their ISAs kindly not stand in front of
those buying groceries. The PEP sell-by date is
October 1999.
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