The aforementioned companies see PEPs as another avenue to get investors hooked into their "collective" savings products, principally unit and investment trusts. As a result they have been merciless in projecting the tax efficiency of PEPs. But all too often that "tax free" tag, when it is applied to "PEPable" investment funds, invites the saver to assume that just about any PEP is a good investment. However, the tax treatment of your savings is only one factor in choosing the right investment plan. Of greater importance are the investment manager's ability and the charges they make, plus, whether the tax breaks suit an individual's circumstances.
Answers to the first two are easier to come by. Much the best way to assess a particular PEP is to see how the underlying funds perform against their peers in a particular sector. Although past results are not necessarily a guide, consistent appearances in the top league are a pretty good indication as to a fund manager's competence.
As most PEP investors are in for the long haul, short-term statistics might seem meaningless. More important is how the funds have done over at least five years, a reasonable time to hold a PEP. Inevitably much of the vaunted performance is down to how well the underlying markets in which a PEP fund is invested have performed.
According to the table, more than half of the 10 top-performing unit trust PEPs over the past five years invest in Europe. Index-tracking funds are some way behind. Legal & General's UK Index tracker, for example, has grown by a more modest 94 per cent.
UNIT TRUST PEP PERFORMANCE
What pounds 100 is worth after:
5 years 3 years 1 year
1 S&P Financial 283 216 126
2 Threadneedle European 274 196 123
3 Friends Provident European 271 189 122
4 Old Mutual Swiss Equities 261 176 138
5 Framlington Financial 257 201 130
6 Scottish Equitable European 250 174 124
7 Henderson European 233 168 122
8 Prolific American Opportunities 231 195 131
9 Perpetual European 230 169 122
10 Sun Life of Canada European 229 170 122
Source: Standard & Poor's/Micropal, to 01/01/98