But now the government wants to attract an additional raft of new smaller savers and investors, and plans to replace PEPS and Tessas with an Individual Savings Account (ISA) in April 1999.
The consultation document last year aroused widespread opposition, largely because the annual investment limit is reduced to pounds 5,000 including pounds 1,000 in deposits and life assurance policies, and a lifetime limit of pounds 50,000. If the current proposals get the go-ahead, existing PEP investors will have to transfer funds over to ISAs, and thus preserve their exemption from tax, but with an upper limit of pounds 50,000.
Holders of Tessas will be able to keep their accounts going through to maturity, to the end of the five-year term, if the account is started before April 1999. The capital from maturing Tessas may be switched into the ISA if the account's total capital remains within the overall pounds 50,000 limit.
Some investors are waiting until the Budget when the Chancellor is expected to announce the final details of the ISA, before deciding whether to take up their allowances in the current financial year. But Paul Boni, investment director of independent financial advisers Berry Birch & Noble, says: "Whatever the outcome of the Chancellor's deliberations for individuals with sizeable PEP holdings, they should ensure they buy their 1997/98 quota. PEPs' capital gains tax exemption may become more valuable, post- Budget."
Meanwhile PEP providers are trying to make products as attractive as they possibly can. Companies like Royal & Sun Alliance, Gartmore and Perpetual have announced special PEP season discount offers. Legal & General and Schroders both say they will probably launch some sort of offer too.
Before parting with your money, you should, however, check with your PEP manager to see if they are planning to levy any charges for transfer from PEPs to ISAs next year. Most of the leading management groups such as Fidelity and M&G will make no charge for this.
Contact: Berry Birch & Noble 01905 775333; Gartmore 0800 289336; Fidelity 0800 414171; Legal & General 0500 116622; M&G 01245 390390; Perpetual 01491 416123; Royal & Sun Alliance 0500 111333; Towry Law 0345 868244.
The author writes for 'Financial Adviser'.