Despite being hailed as the savings plan for everyone, the Individual Savings Account (ISA)* - implemented from today (April 6) - still remains a mystery to almost half the population.

Forty-four per cent of people questioned by Gallup on behalf of Yorkshire Bank could not explain what an ISA was, one-in-six believing it to be a Government-led pension scheme, and one-in-seven young people - aged 16 to 24 - thinking it was an industry body which regulates financial institutions.

In addition, confusion about the ISA, and other changes to tax-free savings, has led to apathy about tax planning. Eighty-nine per cent of those surveyed say they won't be making financial plans for the tax year end, despite potentially more tax-free savings up for grabs.

In the long term this can only be costly, says the bank, as people will inevitably pay tax they needn't on their savings.

"Given the Government's aims for the ISA - to end much of the confusion between a TESSA and a PEP and make tax-free savings more accessible - our study shows there is much work to be done," says Andrew Hindle, savings manager from Yorkshire Bank.

"Rather than end confusion, the level of understanding about ISAs in particular has not risen at all in the past year, despite the deluge of material to promote it. People are also still unclear about what's happening to TESSAs and PEPs. In fact, we were surprised to find that even fewer people understand the ISAs complexities now, and its impact is on TESSAs and PEPS, than at its announcement last year. What this means is that the typical savers are switching off; they've had their fill of financial jargon, and unfortunately, it will cost them dear."

Nevertheless, a last-minute rush for PEPs and TESSAs has given the investment industry a bumper sales season. The Association of Unit Trusts and Investment Funds said that unit trust and PEP funds under management topped £52 billion in February - a 29 per cent rise on the same time last year.

PEP net retails sales for February totalled £627.6 million - up from £304.2 million the previous month.

The Individual Savings Account (ISAs) replace Tax Exempt Special Savings Accounts (TESSAs), and Personal Equity Plans (PEPs) from April 6. They were introduced in 1987 by the Conservative Government to encourage people to save.

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