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Personal Equity Plans: Singles given a new lease of life

UNTIL recently, single company PEPs were only considered suitable for investors who already had a large portfolio of shares or those in an employee share-option scheme.

Normally, if you already own shares and want to put them into a PEP, you have to sell them and let a PEP manager buy them back. But with shares bought or received at a preferential rate through an employee share-option or profit-sharing scheme, this does not apply so long as you put the shares in a single company PEP within 90 days. Companies with these schemes often appoint a PEP manager to operate them for employees and charges are low.

Last year saw another group of people investing in single company PEPs - the millions who received windfall shares from demutualising building societies and insurance companies.

Many of them had never owned shares before, but now wanted to shelter the free shares in the tax-free haven of a PEP. Single company PEPs made a potentially attractive home for them, as in many cases the investors had no intention of buying any other shares.

Investing in just one company's shares is usually a high-risk strategy. Most investors will want to diversify their risk and invest in a fund where their money is spread across a wide portfolio of equities. But with the new individual savings accounts due to replace PEPs in April 1999, investors with spare cash may want to reconsider the merits of single company PEPs.

Ian Millward, editor of Chase de Vere's PEP Guide, points out that under proposals for the ISA there will be no distinction between single company and general PEP money. You will be able to put up to pounds 50,000 of PEP money into an ISA. So if you do not have this much invested in PEPs and want to get as much tax-free savings as possible into an ISA at the outset, investing in a single company PEP now could make sense. "This way you can build up your PEP savings. Once you have tipped these into an ISA next year, you can then transfer the single company PEP money into a collective investment," says Mr Millward.

As with all PEPs, you have to invest in single company PEPs through a PEP manager. They can be self-select, corporate or managed.

More than 200 public companies have set up corporate PEPs to encourage people to invest in their shares. The company appoints a PEP manager who administers the scheme for them. Charges are low, and in some cases there are no fees at all. If you know which company's shares you want to buy, this can be a cheap way of setting up a single company PEP. But these schemes can be inflexible as often you can only hold that company's shares in the PEP. Corporate single company PEPs are generally run by the stockbroking arms of building societies and banks.

If you would like some help in selecting a suitable company, you should opt for a managed single company PEP where the manager chooses a company for you. Managed PEPs are offered by a number of stockbrokers as well as companies such as Fidelity, Perpetual and Johnson Fry. Check charges as these can work out expensive.

Single company PEPs do have limited appeal inasmuch as most of us will want more diversification in our investments than a single trading company. But some managers have taken advantage of loopholes in the PEP rules to launch "single company" PEPs that offer lower risks. One example is HSBC's Protector PEP which invests in one company, HSBC UK Equity Plus, based in Dublin. This in turn invests in a whole range of top UK companies. The HSBC Protector PEP qualifies as both a general and a single company PEP, and will run for two years. During this time, investors receive any growth in the FT-SE 100 index up to 10 per cent a year and their capital is also protected. If at the end of the period the market has fallen, savers will still get back all their original money. The PEP is available until 5 March, and the minimum investment is pounds 1,000. For more details call 0800 289505.

q Chase de Vere Investments publishes details of all the PEP schemes on the market. PEP Guide costs pounds 12.95 and is available by calling 0800 526092.