PEP heroes challenged by old kid on the block

Legal & General is taking on rivals like Virgin with its new, cut-price products, writes Steve Lodge

One Of Britain's much-criticised life insurers is undercutting every mainstream PEP available - including those of Richard Branson's Virgin Direct - in a bid to establish itself as a "first-choice" PEP company.

The insurer, Legal & General, has added another cut-price option to its existing market-beating deal and is particularly targeting PEP transfers - getting savers to transfer their existing PEPs from other companies, rather than invest more money. L&G's new option offers a cheap, lower- risk choice for investors worried about the possibility of a stock market crash; the low charges also mean investors should have less to fear from the Government's planned introduction of Individual Savings Accounts (ISAs) than with other PEPs.

The basic proposition is rock bottom prices. For example, investors in Virgin's Growth PEP which tracks the performance of the stock market, in simple terms could save pounds 30 a year in charges on a pounds 6,000 PEP by transferring into a copycat stock market tracker run by L&G. "It's hard to argue with," says Martin Campbell, product development manager at Virgin, conceding that investors would be better off switching.

L&G's Index-Tracking PEP has just one charge - 0.5 per cent of the value of your investment annually. Most PEPs charge 1 per cent or more annually and also have other charges when you first invest. Index-tracking PEPs have also proved themselves in investment terms, showing consistently good returns compared with many PEPs claiming to offer market-beating performance.

As well as offering the cheapest stock market tracker, L&G last week slashed costs on another, lower-risk PEP offering a high tax-free income, again making it the cheapest of its kind on the market. The L&G Corporate Bond PEP, which gives a tax-free income of 7.5 per cent, also carries an annual management charge of just 0.5 per cent (or pounds 30 a year on a pounds 6,000 PEP) and, like L&G's stock market tracker, has no other charges.

Nevertheless, the savings on the bond PEP will be less important to many investors than the overall package now offered by L&G. Unlike trackers - which are basically the same and so differences in charges do matter - bond PEPs hold different investments which already give them the potential for significant differences in performance.

L&G is also offering completely free switches between its PEPs. Most other companies make some charge. Savers in tracker or other stock market PEPs who are worried about the market's precipitously high level at present could switch into L&G's bond PEP as an interim bolt-hole. If the market should then take a tumble, bond PEP investors should be better protected; they could then switch freely into L&G's tracker PEP at the lower level - and at absolutely no cost. Over the longer term a tracker PEP should outperform a bond PEP.

In addition, it is possible to get a cashback on switching into L&G PEPs by using a discount broker. Companies such as Chelsea Financial Services (0171-351 6022) will give a cashback worth 0.75 per cent of your investment (pounds 45 on pounds 6,000) for switches and new investments.

But L&G's deal will not suit all PEP investors. Many PEPs now carry charges if you transfer or cash them in within a certain time, which can total as much as hundreds of pounds. Even Virgin,with some of the lowest costs around, has an exit charge of 0.5 per cent of the value of investments, which would offset the other savings. Also, if you switch an existing PEP containing windfall shares, L&G will require you to sell them for the company's own investments.

The L&G deal comes as some investment companies are loath to launch new PEPs because of uncertainties about what will happen to them when ISAs come into being in 1999. Many savers may be better off sticking with what they've got until the details of the ISA and what will happen to existing PEPs becomes clearer, which could be this year. That said, L&G's low charges and its own lack of exit charges should mean that investors are certainly no worse off - and may be better off - than with other PEP companies.

If you do want to transfer, L&G promises to take care of all the paperwork, even if you use a discount broker. L&G itself is on 0500 116622, but contact a discount broker if you want the cashback.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search

British Gas repays £1m for mis-sold deals

British Gas was yesterday forced to pay back £1m to its customers after mis-selling them energy deals.

Bare necessities of life cost a pensioner £10,000

Pensioners now have to spend £10,387 a year on basic necessities such as food and fuel. new figures published today reveal.

Six months since its introduction, Obamacare has set market's pulse racing

As America's health reforms take effect, some firms look well placed to benefit, says Simon Read

Holidaymakers warned over hidden charges when opting to pay in sterling abroad

Fresh warnings emerged this week that overseas retailers and hotels aren't playing fair.

Employees will be able to request flexible hours in drive to make workplaces family friendly

From next week employees will be able to request changes to working hours. Rob Griffin weighs up the options

E2Energy's wind-turbine scheme offers green investors 7.5 per cent a year

If you're fed up with paltry returns on your savings and are interested in green energy, a new loan-based crowdfund launched this week could be a better home for your cash.

Why miss the chance of tax-free returns as Isas raise their game?

The tax-free limit of £15,000 is a big jump and rates for savers are starting to edge up, writes Simon Read
More and more trade drivers are falling prey to fraudsters

'Crash for cash' gangs target white van man

"Crash for cash" accidents are reaching record levels. The insurer Aviva trawled through its claims data to discover that fraudulent "slam-ons" – accidents deliberately caused in order that claims can be made for whiplash compensation – rose by 51 per cent in 2013.

Lenders lose their appetite for debt forgiveness

Banks may be getting tougher with people who fall into financial difficulties, a debt charity has warned. Statistics from The Money Charity reveal that the amount of personal debt written off by banks and building societies reached an all-time low during the first quarter of the year.

Should you pile into the Footsie or run for the hills?

With the 7,000 mark in reach, investors must ask if the index will keep climbing or peak and plunge, writes Simon Read

High-cost payday loan firms set to be exposed

More payday lenders could be forced out of business after the Competition and Markets Authority called for an independent price-comparison site to show borrowers which loans charge rip-off interest.

Are you due an energy supplier refund?

The relatively mild winter means you could be in line for a refund from your energy supplier, and it won't be peanuts! New research published this week suggests the average household in credit with their energy company could be owed £86.

Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Accounts Payable

    £12 - £15 per hour: Cameron Kennedy Recruitment: Excellent opportunity to join...

    Technical BA - Banking - Bristol - £400pd

    £400 per hour: Orgtel: Technical Business Analyst - Banking - Bristol - £400pd...

    Account Management Strategy Manager

    £38000 - £42000 per annum + competitive: Real Staffing: Required skills:Previo...

    Business Analyst Consultant (Financial Services)

    £60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

    Day In a Page

    A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

    A History of the First World War in 100 Moments

    Peace without magnanimity - the summit in a railway siding that ended the fighting
    Scottish independence: How the Commonwealth Games could swing the vote

    Scottish independence: How the Commonwealth Games could swing the vote

    In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
    Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

    A writer spends a night on the streets

    Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
    Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

    UK's railways are entering a new golden age

    New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
    Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

    Conchita becomes a 'bride' on Paris catwalk

    Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
    Pétanque World Championship in Marseilles hit by

    Pétanque 'world cup' hit by death threats

    This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
    Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

    Why did we stop eating whelks?

    Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
    10 best women's sunglasses

    In the shade: 10 best women's sunglasses

    From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
    Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

    World Cup final: Messi? Mascherano is key for Argentina...

    No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
    Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

    Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

    18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice