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£1bn Pep bonanza as Brown boosts ISA

Fund managers are predicting a Pep bonanza of up to £1bn in the next three weeks following Chancellor Gordon Brown&#39s decision to overhaul plans radically for the Individual Savings Account.

Under the new rules, all Peps held at April 5, 1999 will keep their tax advantages and not have to be transferred into the new ISA.

The rules are a major U-turn on the proposals published by the Treasury last December which would have made Pep investments count towards a £50,000 lifetime limit for ISAs.

The ISA will now have no lifetime limit but will be limited to £5,000 a year for 10 years.

Investors will receive a further bonus in the first year of ISAs – contributions of up to £7,000, including £3,000 in cash, will be allowed.

Fund managers are claiming that investors will flood into Peps following Brown&#39s decision to safeguard Pep benefits and scrap the ISA lifetime limit.

Royal & Sun Alliance estimates that more than 700,000 people have held back from investing in Peps because of uncertainty over ISAs.

The company expects about £770m to be pumped into Peps in the remaining three weeks of this tax year.

The Treasury had estimated that 350,000 investors would have been hit by a £50,000 lifetime cap.

Clark Conway managing director Alastair Conway says: "If you have £6,000 to invest, do it now. Plan to Pep this year and next."

M&G director of communications Rachel Medill says: "Certainly, it removes all the worry from investing this tax year and next year. It will have a big effect on Pep sales."

Schroder Unit Trusts marketing director Bridget Cleverlysays: "We were most ple- ased for us, the investors and IFAs that the £50,000 limit has disappeared.

"It will remove a lot of uncertainty with Peps."

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