Money: Pleasure and pain

Financial observers took some very different positions on the reform plans for savings

Andrew Coker, director of Tesco Personal Finance, welcomed the opportunity to assist the Government's grand design. "Only supermarkets can help those who don't save at present."

Mark Boleat, director general of the Association of British Insurers, said the inclusion of life assurance policies is a very welcome development. "Life insurance is the most popular form of planned long-term saving in the UK."

Gary Marsh, head of Group Corporate Affairs at the Halifax, welcomed the simplicity, flexibility, accessibility and fairness of the proposals. "The proposed limits for contributions may be lower than currently available for PEPs but still offer significant incentives to most people to save, in keeping with the stated intention to benefit the many and not just the few."

Ernest Fenton, director general of the Association of Investment Trust Companies, welcomed the inclusion of many investment trusts previously excluded from PEPs because they invest mainly outside the EU.

Gary Britton, savings and investment manager at the Pearl, was one of the few established providers of tax-free savings to welcome the proposals. He described the pounds 50,000 lifetime limit as "realistic".

Most established providers were highly critical. Philip Warland, director general of the Association of Unit Trusts, said: "The majority of PEP investors are not rich. Their reasonable expectations would be betrayed and there is a real danger that as the proposals currently stand the ISA will simply not succeed in getting off the ground."

Paul Kafka, executive director of Fidelity Investments, one of the main PEP managers, said: "There are some good elements but the whole package is ruined by the pounds 50,000 lifetime limit on contributions.

"It will act as a disincentive to new savers by creating a manana mentality among savers who will think they will have plenty of time to reach the limit later, but it punishes those who are already over the limit. Monitoring the limit will result in more cost to the Government and create a big brother approach."

Elspeth May, personal financial services partner at KPMG, said: "The new accounts appear to be significantly less attractive than the PEPs and Tessas they replace. The limit of pounds 1,000 in cash invested is quite severe considering than many people will take their money in and out. They may be tempted to invest in equities on a short-term basis which could be dangerous.

"One must wonder why anyone not attracted to save under current tax-friendly options should be willing to do so under this scheme."

Dr Madsen Pirie head of the Adam Smith Institute said: "The Government has fallen hook, line and sinker for the Treasury line that tax foregone is a cost to the Exchequer. A future government will increase the ceiling four or fivefold straight away in order to provide a real incentive.