Outlook: ISAs

IT'S PROVED a long and difficult birth, but finally the Government's new CAT standard for Individual Savings Accounts has emerged blinking into the light of day. The Government's original insistence that only tracker funds would get the official stamp of approval has been dropped, and instead there is a set of minimum requirements for all - active as well as passively managed savings products.

The only trouble is that the hurdles have been set so high that very few savings providers are going to bother to jump them. The specified maximum annual charge of 1 per cent would be fine for most funds, active and passive, were it not for the fact that it appears to include stamp duty, which would account for about half the charge. There are hardly any savings products on the market right now charging 50 basis points or less. And the few that do tend to fail on some of the other CAT standards, notably that the minimum investment should be no higher than pounds 500 and that the fund should be open to regular monthly payments.

There will no doubt be some fund managers that do achieve a CAT-marked investment vehicle, but the great bulk won't. Ministers will swiftly jump on this as more evidence of the "rip-off" savings industry. While there may be something in this, it rather misses the point. It was always wrong as a matter of principle for the Government to attempt to introduce CAT marking into discretionary saving products. Ministers can say until they are blue in the face that a CAT mark does not amount to a guaranteed return, but that is how many people will view it.

As we are finding out, stock markets do not always go up; it is highly dangerous for governments officially to stamp an investment product "good value" when there is a possibility of it destroying, rather than enhancing savings. People won't thank either the Government or the product provider for tempting them into such a trap.

Furthermore, the amount people are prepared to save is bound to be finite. The Government's stakeholder pension proposals are due to be published shortly. For the low-paid, saving for retirement cannot help but do battle with discretionary saving for a rainy day, since there is only so much that can be saved.

If compulsion is introduced into pensions, then for this group of people at least, the ISA will be as dead as a dodo. Any thought of compulsion demands that the Government provide some kind of implicit guarantee of value. But it should not and in practice cannot be done with voluntary saving.