How to stock up

Aiming for growth? Saving for glamorous holidays? Or more interested in a high yearly income? Ken Welsby advises on the most appropriate PEPs for your personal priorities

Why do you want a PEP? Or, to put it another way: what do you want a PEP for? This is one of the first questions to answer when you come to look at any type of investment - and it's particularly true with investments such as personal equity plans which depend, for the most part, on stock-market performance. So let's look at what you can get out of a PEP.

Probably the first thing to decide is whether you want the plan mainly to provide you with an income, or whether you are looking for capital growth.

Bruce and Barbara Wilson, both in their late forties, say that after years of struggling to make ends meet they are now "comfortably off" - and want to stay that way when they retire, he from engineering management, she from a medical career.

"By coincidence we have both got capital sums to invest," Bruce says. "I think it's the first time in our married lives that we've ever been in that position. Barbara has just collected pounds 10,000 from her Tessa and we also made money when we moved from Berkshire back to Liverpool; as you'd expect, there was a big difference in property prices."

The Wilsons are looking for capital growth. They have each put pounds 6,000 in managed PEPs for the current tax year, and are now looking to use the pounds 3,000 allowance for single-company PEPs before the end of the tax year. In April Barbara plans to start a PEP savings plan, investing "pounds 400 or so" each month from the pay rise which came with her new job in Liverpool. More of the money they made from moving house will go as a lump sum PEP in Bruce's name.

Barbara had never considered a stock-market investment until the publicity surrounding the launch of the Virgin PEP. "It made me think about making our money work harder," she says. "I want to be able to enjoy my retirement, not have to do locum cover three days a week to make ends meet."

On the other hand, someone on a modest salary with a lump sum - part of an inheritance, for example - may be attracted by an investment bringing in a modest income.

Emily Walker, a marketing executive, has a simple investment goal: she wants her PEP to pay for a holiday every year. To some of her friends back in Devon, a salary of pounds 25,000 a year in London sounds like big money, "but they don't realise what the cost of living is here."

So when an aunt left her some money, "my first priority was to buy a flat without having to take out a 99 per cent mortgage, and I moved in just after Christmas. I've tucked away a couple of thousand for emergencies - in case I get the sack - and now I'm putting pounds 9,000 in PEPs for this tax year, and the same again for next. Obviously the mortgage is a big commitment - so the idea of a few hundred a year tax free has got to be a big attraction."

PEPs are long-term investments. Their value will rise and fall in line with stock-market and company performance, and ideally they should be kept for at least five years. They aim to achieve both income and capital growth. Typically, a PEP earns between 3 per cent and 5 per cent a year in dividends, as well as achieving capital growth. Those looking primarily for income from a PEP should consider a corporate bond plan, or one which aims to achieve a high income.

The next choice is between actively managed funds or passively management, commonly known as tracker funds. With active funds, the manager selects individual company shares within a specific investment sector. This could be a specialist area, such as small companies, or a particular region, such as the UK or Continental Europe. If you want to see how these sectors compare, check the unit trust pages in Saturday editions of The Independent.

Trackers aim to mirror the performance of a particular stock-market index - either the FT-SE 100 or the FT-SE All Share. The FT-SE 100 index covers the 100 companies with the highest market capitalisation, while the All- Share index covers about 900 companies and is thus representative of the market as a whole rather than the leaders only.

The FT-SE 100 represents almost 70 per cent of the market by value, while the All Share covers 95 per cent - and benefits from the inclusion of smaller companies often out-perform the leaders.

Funds which track the FT-SE 100 are offered by HSBC, Fidelity, Midland, Sovereign and Virgin Direct, while Equitable Life, Direct Line, Kleinwort Benson, Gartmore, Old Mutual, Morgan Grenfell, Legal & General, HSBC and Norwich Union track the All Share index

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Steve Bruce and Gus Poyet clash
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths
Life and Style
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
Amazon misled consumers about subscription fees, the ASA has ruled
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive - OTE £40,000

    £15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

    Austen Lloyd: Law Costs HOD - Southampton

    £50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

    SThree: Recruitment Resourcer

    £20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Day In a Page

    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot
    Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

    Poldark star Heida Reed

    'I don't think a single bodice gets ripped'
    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn