In two of the last three years that he held his Bank of Scotland PEP the charges outweighed the tax saving. He would have been better off making the investments outside the plan.
Mr Parkhurst, from Newhaven, East Sussex, is a 25 per cent taxpayer. He does not anticipate a capital gains tax bill (even if his shares grow sufficiently in value he can use the annual gains tax allowance - currently pounds 5,800 - to avoid paying tax), so the income tax saving is his only reason for having a PEP.
As a self-select PEP holder he makes his own investment decisions and has a portfolio of blue-chip stocks including BT, Fisons, P&O and TSB.
Bank of Scotland makes no initial charge on its self-select plan but levies 1 per cent plus VAT annually. The dealing charge up to pounds 5,000 is 1.5 per cent with a pounds 15 minimum.
Douglas Tait, senior manager at Bank of Scotland's PEP division, defends the charging system. 'Most PEPs are percentage-based and we compete in that market,' he says. 'We have one of the most keenly priced PEPs, given the lack of restrictions.' The plan allows investment in any UK quoted share, investment trust or unit trust.
For standard-rate taxpayers, Mr Tait says, the yield needed to make the PEP cost-effective is 5.875 per cent. For higher-rate taxpayers the 'break even' yield is 2.9375 per cent.
These figures are not mentioned in the PEP brochure. Mr Tait thinks investors should be aware of such difficulties since the booklet says the self- select plan is 'definitely for the knowledgeable investor'.
In fact, Bank of Scotland's charges are low compared with many competitors. It is not among the best buys for self-select plans picked out by the analysts BESt PEP, which recommend plans from Charles Stanley (071 739 8200) and PH Pope (0782 202154) and from the share-dealing service Sharelink (021 200 4545).
Sharelink has no initial charge and an annual charge of 0.75 per cent plus VAT, minimum pounds 20. The commission rate for dealing is 1.5 per cent, minimum pounds 20 and maximum pounds 37.50.
Charles Stanley's plan charges 0.75 per cent plus VAT on the first pounds 10,000 in the plan and 0.5 per cent on the next pounds 40,000. There is a dividend collection fee of pounds 1 plus VAT per dividend. The initial charge is pounds 25 plus VAT on a first plan opened with the firm, but this does not apply to plans transferred from other managers. The dealing charge is 1 per cent.
Pope has no initial charge and an annual fee of pounds 12 plus VAT per holding (miniminum pounds 40). The dealing charge is 1.65 per cent, minimum pounds 20.
Given that even with a cheaper plan the investor may not make a profit, some holders of high-charging plans must be making a substantial loss. Nor is it only self-select plans that are at risk.
A reader from Salisbury thinks the pounds 5.09 gain he has made by holding his shares within a PEP is derisory.
He has Abbey National shares held in the bank's own corporate PEP. He has seen substantial capital growth - from pounds 1,000 in 1990 to almost pounds 4,000 now - but his tax reclaim last year was only pounds 32.43 compared with pounds 27.34 management charges. Corporate PEPs are usually very cheap, though Abbey National's annual 0.85 per cent charge is higher than the usual 0.5 per cent charge.
Abbey National shares, which were yielding 6.77 per cent just after launch, were this week producing only 3.87 per cent. The yield on the all-share index in the middle of last week was around 3.9 per cent.
A share PEP is best seen as an income investment, much more likely to benefit higher-rate taxpayers.
PEPs that invest in unit and investment trusts are different. Most unit trust PEPs have no charges on top of the normal ones. The PEP investor is therefore better off by definition than the non-PEP holder of the trust. The cumulative benefit of investing income gross can be considerable.
The Newton income trust, a top trust in the BESt PEP income and growth category, has done 31 per cent better for PEP than for non-PEP investors paying basic rate tax over three years and 63 per cent better for higher-rate taxpayers.
Investors buying British Telecom shares in the forthcoming sale will be encouraged to hold them in personal equity plans.
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