Treasury rules for ISAs may cost providers pounds 1bn

The Government's plan to replace Tessas and PEPs is so complicated it will cost the savings industry an extra pounds 1bn, according to IT providers. As Andrew Verity reports, companies will have to spend at least pounds 1m each on computer systems to cope with the Individual Savings Account (ISA).

If the costs are passed on to the consumer, every ISA buyer will pay an extra pounds 30 each, every year, to pay for administrative complexity, according to OSI, a management consultancy.

OSI yesterday said its price tag of pounds 1bn was based on the cost of complying with the new regulatory regime. Extrapolating from estimates by its clients, OSI said life companies, banks, fund managers and PEP providers would spend pounds 960m more.

Peter Elliott, OSI principal, said: "This pounds 1bn will be an additional cost to an industry still coming to terms with the billions being spent on the year 2000 issue, EMU and the introduction of open-ended investment companies (Oeics). If the cost was passed on to the customer, it would amount to around pounds 100-pounds 150 over a five-year period."

The finding was backed yesterday by other big providers of IT services. Expensive systems will be needed to police numerous new rules. Those include a pounds 5,000 annual limit on contributions, a pounds 1,000 limit on cash deposits, a pounds 1,000 limit on life insurance and a pounds 50,000 lifetime limit (minus withdrawals).

Stuart Greenslade, of Marlborough Sterling, the IT provider, said: "The issue is - how the hell is a provider going to manage all of this? It becomes even more complex - what are they going to do when people transfer their money or withdraw?

"It is probably going to cost about pounds 1m per system and with some companies it will be pounds 2m to pounds 3m."

The limits are understood to have been imposed by Treasury officials concerned at the pounds 1.27bn cost of tax reliefs for the ISA. IT providers are concerned not only at the cost but the time scale.