From 6 April we can all invest a further pounds 6,000 tax-free in a 1997-98 PEP, and this is a year that will prove interesting for millions as we collect free shares in the great building societies handout.
It means being careful when setting up a personal equity plan for the coming year; make a mistake and you may miss out on the opportunity to shelter your new shares in a PEP.
Around 16 million people will benefit from free shares when four of Britain's biggest building societies convert to banks. First comes the Alliance & Leicester, which will convert in April, but the big one will be the Halifax which, following a 97 per cent vote in favour of flotation last week, is set to make the change in June. The Woolwich and Northern Rock flotations will be in the summer and autumn.
If you intend to keep your shares, you should put them straight into a PEP. The Inland Revenue has announced that all windfall shares will have a net value of nil, because you have paid nothing for them. This means you can shelter them in a PEP on top of your annual PEP allowance of pounds 6,000, as long as you do so within 42 days of receiving your bonus.
But to do so you must have a self-select PEP or a general plan designed to accept your free shares. This is where planning is required. Many of the leading PEP managers, including Perpetual, NatWest, Mercury and M&G, have announced that the shares can be 'PEPped' into their plans free of charge.
At the same time, members of the floating building societies will be sent details of single-company plans, such as the Halifax PEP, where your shares can be held. The latter can seem like an attractive option, particularly as the building society will arrange everything for you, but putting your shares in a single-company PEP could be a mistake.
Remember that you are allowed only one single-company PEP each year, in which you can shelter pounds 3,000 of shares, and putting free shares in it will waste this allowance. If you are going to benefit from more than one windfall then you will also not be able to open another single-company PEP for the second allocation of shares.
The sensible strategy is to set up a PEP now into which you can simply deposit your shares when you receive them. Bear in mind that you do not need pounds 6,000 to set up a PEP; there are many regular savings schemes that will accept your new shares and allow you to start with just pounds 20 a month .
Indeed, many experts favour a diversified portfolio, with a mixture of the safer pooled investments such as unit trusts and investment trusts, and the high-risk individual shares.
If you set up a PEP now with, say, a unit trust, and add your shares later, you could end up with a nicely balanced plan. Perpetual's General PEP, for instance, allows you to save from pounds 20 monthly and to choose from three different options: growth, income or global. Other fund managers have similar deals.
The regular savings approach to investment is also a sound one. The theory is that through a process called pound-cost averaging, you reduce the chance of buying your investment at the wrong time.
By investing in a unit trust every month, you end up buying units at a variety of prices, so if prices fall you get more units for your money.
On the other hand, the sooner you get your money working for you, the sooner you will benefit from the income, as well as any growth. So if you have pounds 6,000 to invest on 6 April, you may as well find a plan in which to invest right away.
The other vexing question is how long should you keep hold of your building society shares? There is no easy answer.
The Halifax is the biggest and will go straight into the FT-SE 100 when trading starts. This means its shares will be much sought- after by institutions, which tend to buy all the blue-chip shares, and fund managers running index-trackers. The demand is likely to be strong for some weeks after flotation, which means it would be a mistake to sell straight away.
The performance of all the new shares will depend on how the management reacts to the challenges that face a publicly-owned company. Companies that have planned flotations and are prepared for their new environment will do well; those that have floated so senior management can make a mint out of free shares and share options are likely to do badly.