Run for cover to beat tax rise

Personal Finance
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The Independent Online
BORED with the Budget already? Then this column will only give one tip, and there's a good chance it will save you money. Anyone planning to buy medical, travel, motor or household insurance should do so on Monday. Insurance premium tax - currently 2.5 per cent - is a top tip to go up, possibly to as much as 6 per cent. The equivalent tax is much higher elsewhere in Europe and, for the Chancellor, it's "fairly easy money", according to Maurice Parry-Wingfield of Touche Ross.

If it does go up, you cannot assume insurers will absorb the extra cost. An increase to 6 per cent could cost the average household pounds 32 more a year. Of course you cannot do anything about the annual renewal dates of existing policies. But if you are planning to take out a new policy, then it might well be worth getting your skates on. Any tax saving could also be repeated in future years if your annual renewal date beats further expected increases in this tax.

TESSA ACCOUNTS start maturing in January, and some lucky savers will get a return of pounds 13,000 or more if they have saved the maximum pounds 9,000 - but only if if you snapped up one of the top fixed-rate offers available five years ago.

Among Tessas with variable rates, the thousand savers with the foresight to open accounts with the Kent Reliance building society five years ago are looking at the best return, according to a survey by Moneyfacts, the company supplying Your Money's tables of savings and borrowing rates. People who have saved the maximum of pounds 9,000 over the past five years are looking at a potential return of pounds 12,400. By comparison, returns from the high street banks will be below average at less than pounds 12,000. The best of the high street names is the Bradford & Bingley building society, with its High Return Tessa.

Past performance is no guide to the future, of course. The Kent Reliance's Tessa is no longer available, and the society says it may only offer a new Tessa to existing savers. But, says Moneyfacts, the survey does highlight the tendency for smaller societies which launch accounts with competitive rates to be likely to keep those rates competitive.

Savers with the Dunfermline and National Counties building societies stand to get the next best Tessa returns. Their larger society brethren could take some lessons on mutuality here.

DO NOT be misled by all the talk of PEP price-cutting. There are three main charges to look out for on PEPs - initial, annual, and exit: what, respectively, is taken out of your money at outset, every year and when you cash in. The PEP price war has been about cutting initial charges, in some cases to zero. But what is more important over the longer term - even five years, which is the minimum period you should put money into a PEP for, and almost certainly over 10 years - is the annual charge. The PEP with no initial charge is not necessarily the best value. A PEP with a higher initial charge may take less of your money overall than a PEP with a lower initial charge. It is the total that is important. That is why a new survey by the specialist magazine Money Management makes revealing reading. It looks at how much money might be taken from a pounds 6,000 PEP over 5, 10 and 20 years.

Legal & General's new UK Index-Tracking PEP has its claim confirmed as being the cheapest stock market PEP over five years among those offered by unit trust companies. It might take pounds 297 out of your original pounds 6,000 over five years, according to the analysis. The new Virgin Growth PEP is close behind. Neither makes an initial charge. But a popular Pep that also advertises no initial charge - M&G Managed Income - will actually take more in charges over five years than a good, but less hyped PEP with a 3 per cent initial charge - the Morgan Grenfell UK Tracker.