ISAs to be reformed next year

Moves to encourage people to save in tax-efficient accounts will come into force next year, the government announced.

LONDON (Reuters) - Moves to encourage people to save in tax-efficient accounts will come into force next year, the government has announced.

Economic Secretary to the Treasury Ed Balls said reforms designed to make individual savings accounts (ISAs) more flexible would come into force on 6 April 2008.

The move, following consultation with the savings industry, comes at a time when the government is faced with the challenge of trying to close an estimated 57 billion-pound savings gap and the rising costs of an ageing population.

Balls said: "ISAs are a vital part of our approach to promoting saving.

"The reforms we will introduce next year will make personal saving simpler and more flexible than ever, and encourage every individual to save."

Richard Saunders, chief executive of the Investment Management Association (IMA), said industry figures had expressed concerns over a potential implementation date of April 2007 -- and welcomed the later date.

"The decision to defer the introduction of the changes until 2008 is a sensible one," he said.

"IMA and others argued that April 2007 would leave insufficient time to implement the new systems required."

Balls announced last year that ISAs would be a permanent feature of the financial landscape, guaranteeing their future beyond 2010, and that savers would be able to switch money from cash into shares accounts without penalty.

The government also said it would bring personal equity plans (PEPs), which ISAs replaced, under the same umbrella.

It will allow child trust funds to roll over into ISAs on maturity and remove the "maxi" and "mini" ISA distinction.

Maxi ISAs must have a stocks and shares element and be held with a single provider, while mini ISA holdings can be split between different providers.

However, Chancellor Gordon Brown disappointed Britain's financial industry by not increasing the annual ISA allowance in his pre-Budget report in December.

ISAs were launched in 1999, since when the annual investment limit has remained unchanged at 7,000 pounds. Of that, individuals can save 3,000 in cash.

More than 220 billion pounds have been invested in ISAs since 1999 and over 17 million people in Britain now have one of the accounts -- more than double the number who held PEPs.

However, ISA sales have faltered of late.

They saw a net outflow in November for only the second time in their history, figures from the IMA showed last month.

Net sales were a negative 3.1 million pounds in that month, compared with a positive 83.4 million pounds in October and 79 million pounds in November 2005.

The only other time ISAs saw a monthly net outflow was in September 2004.