But experienced investors who want to build up their own portfolio can do so with a self-select PEP. To do this, you still need a PEP manager to administer the scheme and deal with the Inland Revenue. Apart from this, it is up to you decide what investments go into the PEP, subject to the rules.
You can put up to pounds 6,000 in a general self-select PEP and pounds 3,000 into a single-company PEP in any one tax year. You can only invest in one company's shares in a single-company PEP. A general PEP can invest in unit trusts, investment trusts, open ended investment companies (Oeics), shares, corporate bonds and gilts.
"Self-select PEPs offer great flexibility and choice, but are only suitable for experienced investors," says Alastair Conway, managing director of Clark Conway, independent financial advisers. "These PEPs are only for those who want to buy individual shares and be proactive in the management of their portfolio. Around 99 per cent of our clients prefer to go down the managed PEP route."
Around 50 PEP managers, mainly stockbrokers and the stockbroking arms of the banks, offer self-select PEPs. Most can be run over the telephone. Typically, there is no initial charge for setting up the PEP, although a few do charge up to 3 per cent. But all have an annual management fee and impose dealing charges when you buy and sell investments. These vary a lot.
Usually there is a minimum investment required on self-select PEPs. While Sharelink requires pounds 250, others want you to invest pounds 1,000 or more.
Some PEPs offer a monthly investment facility, so you can save on a regular basis. If you take this route, check the minimum dealing fee as you do not want to end up paying pounds 15 in charges each month when you are only investing pounds 50 a month.
A number of PEP managers have a maximum dealing charge, which can be economical if you are buying large parcels of shares. As well as charges you should check what you can put in the self-select PEP. Bradford & Bingley offers a low-cost PEP with no initial charge, an annual fee of 0.5 per cent and a dealing charge of 0.25 per cent. But you can only put FT-SE 100 shares in the PEP. Shares are bought and sold once a week so this PEP is not suitable if you plan to be an active trader. Lloyds Bank's self-select PEP offers two dealing facilities: an instant, immediate service and a bulk-buying service. Immediate dealing costs are 1.5 per cent, and the bulk-buying service where shares are bought and sold once a fortnight, costs 0.5 per cent.
The immediate dealing charge on pounds 6,000 of shares in a single company would be capped at pounds 75, whereas if you used the bulk-buying service it would cost pounds 30. On top of this, there is the usual stamp duty to pay at 0.5 per cent when you buy any shares.
If you want to include unit trusts in your PEP, check whether the PEP manager will allow this.
Sharewise, a subsidiary of Skipton Building Society, operates a return- commission policy on unit trusts. For example, if you invest pounds 6,000 in M&G's 2nd General unit trust, there will be an initial fee of which 3 per cent, pounds 180, will be paid by M&G to Sharewise as commission for introducing the business.
"Instead of keeping this commission, Sharewise charges its standard dealing charge, and then passes back the commission to the customer. Its dealing charge on a pounds 6,000 investment is pounds 32 plus stamp duty, but the customer then receives a cheque from Sharewise for pounds 180, the rebated commission," a spokesman explains.
q Contacts: Bradford & Bingley, 01274 555700; Lloyds Bank, 0345 455565; Sharewise, 0113 2444095; Killik & Co, 0171-384 4400; Charles Stanley, 0171-739 8200; NatWest, 0171-895 5600; ShareLink, 0121 233 9955.
For a full list of PEP managers offering self-select PEPs and details of their charges, see Chase de Vere's latest PEP Guide which costs pounds 12.95 and is available on 0800 526092. For details of stockbrokers in your area contact the Association of Private Client Investment Managers and Stockbrokers on 0171-247 7080.