The UK’s 16 million savers with £181 billion tucked away in individual savings accounts (Isas) were given an early Christmas present this week.

The Government has decided to extend the life of the scheme beyond the current expiry date of 2010. Ed Balls, the 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. He told the annual conference of the Pep and Isa Managers’ Association: “We will make the Isa a permanent feature of the savings landscape.”

The potentially confusing distinction between maxi and mini-Isas will be abolished, probably from next April, though it is likely that the Treasury will retain the current annual investment limits of £7,000 in stocks and shares and £3,000 in cash.

At the same time, Mr Balls 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, while the 2.2 million Child Trust Fund accounts will be rolled over into Isas automatically when children reach 18, though the children will be free to withdraw the money.

The investment industry welcomed the announcement because it means that investors will be able to continue building up their Pep and Isa nest eggs indefinitely within a tax-efficient umbrella. Jonathan Willcocks, of M&G, the fund manager, says: “There are already a number of investors whose combined Peps and Isas are worth more than £1 million. This week’s announcement means that there will be many more in the years to come.”

Jason Hollands, of F&C Asset Management, also gave a thumbs-up to the changes, saying: “This dispels the uncertainty hanging over Isas and shows that the Government is really committed to them.”

But he adds: “We would like to see a raising of the overall annual limit of £7,000 on Isa contributions. It has never been raised since Isas were introduced in 1999.”

Research by Alliance Trust Savings, a subsidiary of Alliance Trust, the investment trust, shows that if the £7,000 yearly Isa limit had been raised in line with average earnings, investors would now be able put more than £9,300 a year into their Isas.

Adrian Coles, the director-general of the Building Societies Association (BSA), says: “The removal of the distinction between mini and maxi-Isas will make the Isa more flexible and simple to operate.”

However, Mr Coles adds that the BSA would be disappointed if the rule changes do not include an increase in the annual cash Isa limit of £3,000.

A Treasury spokesman said that more details about the changes would be unveiled in this year’s Pre-Budget Report.

CASE STUDY: Savings can keep growing

Ray Bloor is a keen Isa and Pep investor who stands to benefit from the Government’s decision to make them a long-term part of the savings landscape.

Mr Bloor, 52, a draughtsman from Market Drayton, Shropshire, has a total of nearly £120,000 in Peps and Isas, most of which is invested in M&G funds, including the Recovery, Dividend, Income and Corporate Bond funds.

Mr Bloor says: “I have been putting money into these plans for about 12 years, so I now have a mixture of Peps and Isas. I am pleased that I will be able to continue building up money in them for as long as I want. My one complaint is that Peps and Isas were better value when you could claim back the tax credit on equity dividends.”

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