Treasury offered face-saving ISA deal

The Government was yesterday urged to adopt a face-saving formula that would allow its Individual Savings Account to replace Tessas and PEPs - without leaving savers "drowning in paper".

As the Treasury closed its consultation on ISAs, the savings industry said it now expected the Treasury to compromise on proposals to limit savings to pounds 50,000 by allowing PEPs to be frozen as they are.

Geoffrey Robinson, the Treasury minister in charge of the ISA, this week said he accepted concerns that current proposals could cause serious admin problems which would affect savers and providers alike.

The Association of British Insurers and Autif, two trade bodies which represent the majority of the savings market, want a compromise formula to change proposals they call "costly, complex and possibly unworkable".

Under the formula, PEPs would be frozen as they are - rather than being transferred into an ISA - and will keep all current tax benefits. This will stop providers rushing to bring out complex systems to allow PEP savers to transfer to ISAs.

But the formula would allow the Government to keep the pounds 50,000 limit on new ISAs, which are intended to slash the pounds 1.2bn annual cost to the Treasury of tax reliefs for PEPs and Tessas.

M&G, one of the leading providers of PEPs, has also mooted another compromise formula which would involve abolishing the pounds 50,000 lifetime limit. In exchange, the Treasury could cut the 10 per cent tax credit on the growth of savings which it has proposed to pay.

M&G believes the current proposals mean savers will be flooded with forms.