Sixteen million savers with £181 billion in Individual Savings Accounts (Isas) were given a huge boost yesterday by the Government’s decision to extend the scheme beyond its existing deadline of 2010.

Its future had been in doubt, but Ed Balls, Economic Secretary to the Treasury, said that the Isa regime, which allows individuals to invest up to £7,000 a year with tax benefits, will continue indefinitely.

Addressing the annual conference of the Pep and Isa Managers’ Association (Pima), he said: “We will make the Isa a permanent feature of the savings landscape. The overall annual contribution limit will continue to be at least £7,000 for each individual.” The potentially confusing distinction between maxi and mini-Isas will be abolished, probably from next April, although it is likely that the current investment limits of £7,000 in stocks and shares and £3,000 in cash will be retained.

Mr Balls also announced changes to the operation of Personal Equity Plans (Peps), the predecessors to Isas, and the Child Trust Fund. The 3.7 million people with a total of £79 billion invested in Peps will be brought under the Isa umbrella without losing their current tax advantages.

The 2.2 million Child Trust Fund accounts will be automatically rolled over into Isas when children reach the age of 18, though the children will be free to withdraw the money. The investment industry gave a warm welcome to the announcement. Tony Vine-Lott, director-general of Pima, said: “Some investors already have combined Peps and Isas which are worth more than £1 million and they will be joined over the years by many more.”

Richard Wastcoat, UK managing director of Fidelity International, said: “We would like to see this taken a step further with an increase in the annual limit. The £7,000 Isa limit has never been increased.”

Your cash component in any one year is limited to £3,000, whether in a mini-Isa or maxi-Isa