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; request a free guide on NISAs from Hargreaves Lansdown

News
people And here is why...
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
tv
Voices
voicesBy the man who has
Sport
Arsene Wenger tried to sign Eden Hazard
footballAfter 18 years with Arsenal, here are 18 things he has still never done as the Gunners' manager
PROMOTED VIDEO
Life and Style
The new Windows 10 Start Menu
tech
Arts and Entertainment
Kristen Stewart and Robert Pattinson star in The Twilight Saga but will not be starring in the new Facebook mini-movies
tvKristen Stewart and Stephenie Meyer will choose female directrs
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
books(and not a Buzzfeed article in sight)
News
William Hague
people... when he called Hague the county's greatest
News
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
Arts and Entertainment
Twerking girls: Miley Cyrus's video for 'Wrecking Ball'
arts + ents
Arts and Entertainment
Ed Sheeran performs at his Amazon Front Row event on Tuesday 30 September
musicHe spotted PM at private gig
Finacial products from our partners
Property search
Latest stories from i100
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

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Trust Accountant - Kent

    NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

    Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

    £18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

    Law Costs

    Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

    Day In a Page

    Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

    The children orphaned by Ebola...

    ... then rejected by surviving relatives over fear of infection
    Pride: Are censors pandering to homophobia?

    Are censors pandering to homophobia?

    US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
    The magic of roundabouts

    Lords of the rings

    Just who are the Roundabout Appreciation Society?
    Why do we like making lists?

    Notes to self: Why do we like making lists?

    Well it was good enough for Ancient Egyptians and Picasso...
    Hong Kong protests: A good time to open a new restaurant?

    A good time to open a new restaurant in Hong Kong?

    As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
    Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

    Paris Fashion Week

    Lagerfeld leads a feminist riot on 'Boulevard Chanel'
    Bruce Chatwin's Wales: One of the finest one-day walks in Britain

    Simon Calder discovers Bruce Chatwin's Wales

    One of the finest one-day walks you could hope for - in Britain
    10 best children's nightwear

    10 best children's nightwear

    Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
    Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

    Manchester City vs Roma

    Five things we learnt from City’s Champions League draw at the Etihad
    Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

    Trouble on the Tyne

    Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
    Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

    Isis an hour away from Baghdad -

    and with no sign of Iraq army being able to make a successful counter-attack
    Turner Prize 2014 is frustratingly timid

    Turner Prize 2014 is frustratingly timid

    The exhibition nods to rich and potentially brilliant ideas, but steps back
    Last chance to see: Half the world’s animals have disappeared over the last 40 years

    Last chance to see...

    The Earth’s animal wildlife population has halved in 40 years
    So here's why teenagers are always grumpy - and it's not what you think

    Truth behind teens' grumpiness

    Early school hours mess with their biological clocks
    Why can no one stop hackers putting celebrities' private photos online?

    Hacked photos: the third wave

    Why can no one stop hackers putting celebrities' private photos online?