Clear-eyed CAT vision

A set of benchmark standards from the Treasury aims to clarify deals for savers.
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The Independent Online
Savers in their millions will be given the chance to test whether they get a fair deal from the financial products they buy, as part of a package of benchmarks unveiled this week by the Treasury.

The package, announced by Patricia Hewitt, Economic Secretary to the Treasury, aims to set in place a series of voluntary requirements for cheaper products, with greater ease of access and fair terms.

The Treasury hopes savers will be able to make simple choices based on whether the new Individual Savings Accounts (ISA), to be launched next year, meets a set of CAT standards, short for charges, access and terms.

Mrs Hewitt says: "This Government wants to help people who aren't saving to get started and people who are saving to save more. CAT standards will be clear and straightforward so ordinary savers can easily spot the deals that are worth considering."

The CAT standard proposed by the Treasury involve different rules depending on whether they are cash, insurance or equity-based ISAs.

n Cash-based ISAs must have no one-off or regular charges of any kind, such as for withdrawal, except charges for replacements (duplicate statements, lost cards). Interest rates must be no lower than 2 per cent below base rate. Upward interest rates must follow base rate changes within one calendar month. Downward changes may be slower. Minimum transaction of pounds 10. Withdrawals allowed within seven working days or less.

n Insurance-linked ISAs will be restricted to an annual charge of no more than 3 per cent of the value of the fund. No other charges, such as those levied for the guarantee on surrender values. Minimum premiums should be no greater than pounds 250 a year, or pounds 25 a month. Surrender values should reflect the value of the underlying assets. After three years, surrender values should at least return the premium.

n The CAT standards for stocks and shares ISAs are probably the toughest. They will be tied to a maximum annual charge of no more than 1 per cent of net asset value. The minimum saving requirement will be pounds 500 annually as a lump sum, or pounds 50 a month.

Authorised unit trusts, the new Oeics, or certain investment trusts, will all be eligible for CATmarks if their funds are at least 50 per cent invested in shares and securities (satisfying the requirements in the tax regulations) which are listed on EU stock exchanges. Units and shares will have to be single-priced at mid-market price, with any investment risk highlighted in the literature.

The "bundling" together of products in a way that obscures the individual charges on each will also not be allowed and a requirement for all CATmarked products will be for plain-English explanations of what they deliver and prominent risk warnings for equity ISAs.

The Minister is keen to stress that the CAT standard will not be a kite- mark, indicating approval of the product itself. She says: "Of course, the Government can't guarantee the return from the stock market, but the CAT standards will help you get a fair deal."

Despite her hopes, the UK investment industry gave a mixed reaction to CATmarks this week. The Association of Unit Trusts and Investment Managers (AUTIF) terms the policy "a breathtakingly irresponsible act which cynically puts at risk the savings of the most needy in society". The CAT scheme will be read as an endorsement by some investors new to stocks and shares, who are liable to suffer losses in volatile markets and be turned off savings altogether.

But the Association of Investment Trust Companies (AITC) is fulsome in its praise of the scheme, which it says will allow investors to access the lowest cost vehicles. Investment trusts, which are generally cheaper than unit trusts, were to have been ruled out of CAT marks under a proposal mooted by the Treasury in May.