No need to be confused
The principle is simple - just tax-free investment.
Saturday 15 February 1997
Today, some 60 per cent of the total amount invested in PEPs is looked after by unit trust managers while nearly 10 per cent is accounted for by investment trusts.
Yet many investors are still confused about PEPs, according to research carried out for National Westminster by Research Surveys of Great Britain.
This showed that 22 per cent of the population have considered buying a PEP, but four in 10 of those thought that they were "complicated", while one in five thought that "getting information on them is not easy".
As Brian Tora points out elsewhere on this page, a PEP is a package which holds the investment - usually in the form of shares.
Single company PEPs are the easiest to understand as the money has to be invested in the shares of just one company. These are often used by companies which promote share ownership by employees and those which actively encourage private investors.
For example, many of those who were members of Abbey National when it was a building society are now its shareholders, and their ranks were swollen last year by about half a million former National & Provincial members who sold their society to the Abbey in return for shares.
If you were one of the lucky ones, holding those shares in Abbey's own PEP means that you enjoy the income and capital growth free of tax.
In this context, there are a couple of points to note. First, remember that you can invest in a new PEP in every tax year, and secondly, in addition to the pounds 6,000 limit on general PEP investments, you can save a further pounds 3,000 in a single company PEP.
So if you have some spare cash now - say from a Tessa which has matured - you can invest it in a 1996/97 PEP before 5 April. Then, if you do collect windfall shares in the next tax year, you can put those in your 1997/98 PEP and again collect the earnings tax-free. Although you may not collect the full pounds 3,000 on conversion, you will be able to top up your holding if you still want a stake in the business.
Also straightforward is the concept of self-select PEPs. These are the original form of PEP, and are mainly for the sophisticated investor who - usually with the help of a stockbroker - selects a portfolio of shares administered by the chosen manager.
So-called "execution-only" stockbrokers also offer self-select PEPs. But in view of the risks, you must remember not to invest money that you cannot afford to lose.
But of the 1,000 or so different PEP plans available, the great majority are packaged plans which invest in ordinary stocks and shares via unit and investment trusts.
Most funds are straightforward equity investments - buying shares in a spread of companies which have either been selected individually on their merits or because their performance is measured by an index the fund is trying to track.
Some groups offer a fund of funds, whereby investment is in a range of trusts in the manager's stable. Some invest in smaller companies.
A number of management groups such as M&G and Fidelity have trusts specialising in recovery situations. These buy shares in companies that were once high flyers and then suffered a difficult time, but where the managers expect them to recover strongly. Others invest in a mixture of UK and overseas shares.
Recent years have seen some new types of PEP introduced, including funds which invest in corporate bonds and those which offer some form of guaranteed performance.
Corporate bond PEPs offer a means of securing a high income. They have been used largely as a means of boosting the earnings of those at or near retirement. There are now nearly 60 such plans available, mainly offered by unit trust managers, which look after some pounds 3.3bn. They usually secure high dividends by investing in debentures, loan stocks and similar assets.
Another growth area has been the use of various guarantees to protect the investment in PEPs. Some offer a straightforward guarantee of a full return of capital after a fixed period irrespective of the state of the stock market. Typical was a recent offer from Barclays which promised the full return of capital after five years or the percentage growth in the FTSE 100, whichever was the higher.
Other managers, including Scottish Widows, offer funds where any gains are locked in but which limit losses by setting a minimum unit price at various periods, usually each quarter or year.
These funds normally levy higher than average charges and offer protection at the price of some falling off in performance. In order to provide the guarantees, they usually have to invest in a mixture of ordinary shares, fixed interest stocks and derivatives such as futures. The latter is a means of paying a fee today to buy or sell a share in the future at a fixed price.
Whatever the type of packaged PEP you choose, the underlying fund should always be examined to make sure it fits with the investor's long-term investment aims. But always remember that, like any other stock market investment, the value of your investment will rise and fall in line with company and stock market performance.
27 February 2015 07:30 PM
27 February 2015 07:30 PM
27 February 2015 12:01 AM
The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter
26 February 2015 04:17 PM
Hundreds of thousands of people's policies were hit when the mutual insurer almost collapsed at the turn of the century
27 February 2015 12:01 AM
The Department for Work and Pensions has been slammed after a series of cock-ups left an elderly pensioner £26,000 worse off.
24 February 2015 08:57 AM
A 20-month investigation concluded that a lack of price competition between lenders has led to higher costs for borrowers
23 February 2015 04:02 PM
The Financial Conduct Authority said the industry needs to start thinking about solutions to these challenges
20 February 2015 08:00 PM
In 1999 stock markets quickly tumbled, losing many a fortune in the process
20 February 2015 08:00 PM
13 February 2015 08:00 PM
13 February 2015 08:00 PM
06 February 2015 09:00 PM
Phoenix Life: Chance of a refund for overcharged policyholders has risen
10 tips for taking out a personal loan
Has your Premium Bond won the £1million jackpot?
There are 'dark corners' of the investment and pensions industry, says Pension Minister
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
- 1 What happens to your body when you give up sugar?
- 2 This is what the photographer has to say about the picture of a weasel riding a woodpecker
- 3 Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 Average penis size revealed: Scientists attempt to find what is 'normal' to reassure concerned men
New theory could prove how life began and disprove God
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
This is what it's like to be dead, according to a guy who died for a bit
Durham Free School: 'Creationism taught at' free school facing closure
Ukip would cut billions from Scottish budget to fund English tax cuts
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
iJobs Money & Business
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...
£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...
£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads