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Wednesday, March 3, 1999 Published at 22:03 GMT

Business: Your Money

Don't panic over Peps

Savers have time to consider their Isa options

In the first of a series on upcoming changes to the UK savings system with the advent of the Individual Savings Account (Isa), BBC News Online looks at what it means for existing Pep and Tessa holders.

The much-anticipated Individual Savings Account (Isa) makes its debut this week, yet savers are still confused over what it means for their current investments.

Experts discuss the complicated new ISAs on BBC Business Breakfast
To make matters worse, banks and financial institutions are making it harder for investors by distracting savers from the real issues with a flood of 'pre-Isa accounts.

Having just got used to the Isa's predecessors, Personal Equity Plans (Peps) and Tax-Exempt Special Savings Accounts (Tessas), savers must now embrace a new concept.

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Isas will replace both Peps and Tessas as a tax-free incentive to save when they come into force on 6 April. They will combine under one umbrella the tax-free environment for saving via cash deposits and growth investments like shares and share funds.

Savers have a number of issues to consider. But this does not necessarily mean decisions have to be made before 6 April.

The first thing to note is that investors in existing Peps and Tessas aren't required to do anything in advance of the change.

Peps, Tessas carry on

The advent of Isas means no new Peps or Tessas can be opened after that time but existing accounts will carry on until they mature or are closed by savers at a time of their own choosing.

While no new money can be added to ongoing Peps, contributions to Tessas can continue until their 5-year maturity date rolls around.

Investors should also note that they can still switch any existing Peps from one manager to another after next month's deadline.

Graham Bates chairman of the Leeds-based financial advisers Bates Investment Services says there is no need to rush into anything by 6 April. "People should shelve any ideas to consider investing in Isas until the next tax year, which begins in April."

Pep up now

In the meantime, shrewd investors with money to put to work in a tax-free savings environment can make the most of their choices, using up their Pep and Tessa allowances for the current tax year and then opening an Isa sometime after April 6.

There is no reason why investors should hold back from investing in Peps and Tessas now in the wait for the Isa's arrival.

'Pre-Isa' distraction

Muddying the waters is the flood of 'pre-Isa' accounts being offered by banks and investment houses over recent months. Purporting to offer a smooth transfer to the world of Isas, these accounts don't offer the tax concessions Peps do, and Isas will.

Financial advisers warn investors to ignore them saying their only real purpose is to tempt savers to commit early to a particular Isa provider, before they get a chance to appraise the real thing when they come onto market in numbers during April.

Attached to these pre-Isa offerings are a host of gimmicks including cash incentives and prize draws. "They are a disgrace. These accounts are completely confusing the issue," Mr Bates said.

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