From next April, PEPs will be replaced by ISAs. You may, subject to eligibility and allowances, still take out a PEP until the end of the current tax year. All PEPs held at 5 April 1999 may continue to be held as PEPs outside the ISA, with equivalent tax advantages to an ISA and the value of any PEP investments you have will not affect the amount that you can put into an ISA.
As from 6 April 1999, when ISAs formally come into being, Fidelity will be offering both a maxi and a mini-ISA, including a range of its Open Ended Investment Companies (OEICs), unit trusts and investment trusts covering all the world's main markets. Fidelity says its ISA charges will be maintained at the PEP level of 3.25 per cent except for the MoneyBuilder Range. Fidelity will be offering two stocks and shares CAT-marked funds, its corporate bond fund, MoneyBuilder Income Fund, and its FTSE-100 index fund, MoneyBuilder Index Fund. Both funds have no initial charge, no withdrawal charges and a 0.7 per cent and 0.5 per cent annual charge respectively.
But why worry about all this prior to next April? The answer is that Fidelity is taking advance bookings. If you apply for an ISA through Fidelity's online ISAXpress before 31 December 1998, the company will waive the 3.25 per cent initial charge when your money is invested in your chosen ISA funds on 6 April 1999. Assuming you are not investing in the CAT-marked funds which do not incur initial charges, this waiver equates to a potential saving of pounds 220 in charges.
To take advantage of this offer, Fidelity wants you to invest the full pounds 7,000 maximum allowable in year one in the Maxi ISA. Fidelity will park your money in its high interest Cash Fund, currently yielding 7 per cent gross, until 6 April 1999 when your ISA will be opened and pounds 7,000 will be switched into the ISA funds of your choice.
This combination of interest and reduced charges could be worth around pounds 400 to a basic rate taxpayer who invested now and activated their ISA on 6 April 1999. That is equivalent to a gross annual return of 10.1 per cent, or 8.7 per cent net of lower rate tax.
Fidelity ISAXpress: www.fidelity.co.uk
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