There are two main types of Pep:

• General Pep
  Up to £6,000 can be invested in any tax year (April 6 to April 5)
• Single Company Pep
  Up to £3,000 can be invested in any tax year (April 6 to April 5)

Plan managers can be changed every year and different Peps opened, but investors can only open one General Pep and/or one Single Company Pep in each tax year.

Tax Exempt Special Savings Account

Tessas are probably less confusing than Peps. They straightforward savings accounts with normal fixed rate and variable rate options.

Up to £3,000 can be invested in the account of your choice in the first year and £1,800 in subsequent years up to a maximum of £9,000.

To retain the tax-exempt status, the account must be kept open for five years and no withdrawals made.

Although less exciting than Peps, Tessas provide a risk-free way of encouraging people to save.

Individual Savings Accounts

Isas will replace Peps and Tessas as a tax-free incentive to save when they come into force on April 6, 1999.

• There will be no life-time limit on the amount savers can put in to them
• There is a £5,000 annual limit on contributions of which
  • up to £1,000 can go into cash
  • £1,000 in life insurance
  • £3,000 in stocks and shares
• For the first year, the annual limit is increased to £7,000
• Savers can have one single manager for all components or separate managers for the three components
• Windfall shares cannot be transferred into Isas, employee share-schemes can be transferred
• The initial life of the scheme is 10 years with a review after seven years to decide on any changes needed in 2009

The Isa proposals, first published in December 1997, said Peps would lose their tax-free status in October 1999 and there would be a ceiling of £50,000 on the total that could be transferred into the new schemes.

A lifetime cap of £50,000 was also proposed on the total amount that could be put into an Isa.

After much lobbying and criticism of the proposals, Mr Brown changed his mind in the 1998 Budget.

Holders of existing Peps will be able to hold on to their accumulated savings without paying tax, even after they cease to accept new contributions from April 1999.