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Now Tessa is 10

Tessas are approaching their 10th birthday and IFAs could play a vital role in helping avoid even more customer confusion.

The first year of Isas has shown that investors do not understand the complex rules and being left to their own devices has left many in danger of losing out. So will the prospect of more tax-free savings with Tessa rollovers cause even more problems?

Next year sees tax-exempt special savings acc ounts rea ch ing maturity and the Inland Revenue has come up with a set of rules for investors to continue saving their money in a tax-free environment.

Tessas allowed investors to save up to £9,000 over five years and earn tax-free interest if the capital was left untouched. Investors could then put this capital into a follow-on for another five years.

The introduction of Isas in April 1999 meant that Tessas were withdrawn so now inv estors have the choice of where to transfer this money and, with Government studies pricing the Tessa market at £16bn, there will be a lot of companies competing for this business.

Investors can transfer the capital to a new Tessa-only Isa and this will not affect the normal Isa limits although interest and bon uses cannot be included.It is an opportunity for Tessa investors to save an additional £9,000 tax-free alongside the £7,000 Isa allowance.

When the Tessa mat ures, providers are not allowed to transfer the capital automatically into a Tessa-only Isa.

They have to write to investors who are given six months to decide what they will do with their money or face losing the tax-saving opportunity.

This presents a marketing opportunity for providers to persuade investors to transfer the capital into their new products but could lead to customers viewing these letters as junk mail.

Investors could be missing out on tax-free savings for up to six months while deciding on future investments. There will be people who have not realised their Tessa has matured.

Providers are lobbying the Inland Revenue to change the rules so that money can be automatically transferred into Tessa-only Isas so investors&#39 money will not be left in limbo. Changes to the Tessa rules will be included in the Revenue&#39s Isa review and product providers must wait for the results.

Historically, the high str eet has been the choice for Tessa investors but they are likely to be confused by changes to their Tessa savings and the links to the Isa market will only add to this confusion. The likelihood of people transferring their money into a Tessa-only Isa and not realising they still have the full Isa allowance for additional savings is very high.

IFA Baronworth (investment services) director Colin Jackson says: “There is a real risk of investors thinking they can do their Tessa Isa and not do any other tax-free savings and IFAs could help increase awareness.”

Investors can only invest £9,000 into a Tessa Isa and many people will find themselves with additional cash. This presents a great opportunity for IFA advice.

HSBC is running a series of national seminars focusing on helping IFAs help their clients make the most of their Tessa rollovers. Head of IFA marketing Rob Fisher says advisers can show clients the merits of taking a stockmarket-linked app roach rather than the cash option offered by most high-street providers.

HSBC claims its stockmarket-linked Tessa Plus will outperform every other Tessa on the market by more than £2,000 and anticipates its Tessa-only Isa will achieve similar results.

It says it is up to the IFA to go out and capture this market. Just asking clients if they have a Tessa could lead to new business opportunities. Fisher says: “The response from IFAs has been positive. They have the capability in this market to open customers&#39 minds about better investment returns. IFAs will be providing added value to their customers.”


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