But while there are more than a thousand managed PEP funds to be bought off the peg, many of them are already advertising "ISAbility", or the ability to convert into an ISA from April next year. First, it pays to do a little research into the people behind a fund.
If you are serious about making long-term returns, your money could be invested for 10 years or more. Finding a successful investment house, not simply a successful fund, is the best way to ensure consistently good performance over that time. The secret, according to Philip Rose of Wentworth Rose, the independent financial adviser, is to look for a company that is truly an investment specialist. He says: "I would look to companies which have made a name for themselves purely for investment, such as Perpetual, Jupiter and Schroder, not a `me too' organisation which thinks it should offer a PEP."
Even if a particular fund catches your eye because its performance has been good, you should consider first whether the success is down to a cohesive house approach or because the house was lucky enough to hire one talented individual.
Independent financial advisers should be able to give you the background on fund management groups. Unitas, the PEP discounting group, offers a forthright and highly readable bi-monthly newsletter, getting within the guts and personalities of different fund management groups.
Well-run houses will attract, but more importantly retain, good fund managers. Perpetual, for example, has kept the same individuals for the best part of a decade. Jupiter has just signed up all of its management team to another five-year contract. "Both these houses give their managers an equity stake in the business so there is a great incentive for them to do well," explains Pascal Matic, joint partner of Unitas.
A manager's investment performance record can be researched in magazines like What Investment and Money Management, which show performance returns over the past 10 years for all unit trusts and investment trusts on the market. In its Top Management Groups of the Year awards, What PEP magazine analyses how consistently a house has performed across its range of PEP- able equity funds. Finalists last year included Britannia Investment Managers (part of Britannia Building Society), Perpetual, Sun Alliance (now part of Royal & Sun Alliance), and Jupiter. The surprise winner in the What PEP awards was BWD Rensburg, one of the largest stockbroking firms in the north of England. Three of its four trusts have posted returns within the top 25 per cent of their sector consistently for the past five years.
Performance is the key criterion for choosing a particular manager. But charges and levels of service are also important. Philip Rose points out that many unit trust PEP providers have reduced their initial charges to around 3 per cent. So investors should think twice before footing a hefty initial charge of 6 per cent.
"Only pay a high charge if a house has a record of truly adding value," he says. "Some smaller fund managers need to levy higher charges because they are run inefficiently."
But as PEP providers have become embroiled in a charges war, Rose warns that companies may have cut costs in other areas. "Some houses have let themselves down with sloppy administration and it is desperately frustrating for the investor," he says.
Past performance is the most reliable guide to a manager's pedigree but it is worth keeping an eye out for undistinguished houses that are in turnaround. Pascal Matic cites massive improvement in Save & Prosper's fund range, rationalising its fund range and bringing in a new investment director, Michael Ashbridge. "It has an excellent international equity manager in Robin Evans and a great UK manager, Andrew Spencer. In my mind, it is one of the most improved groups of the last two or three years."
The writer is editor of `What PEP'Reuse content