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

PROMOTED VIDEO
Arts and Entertainment
glastonbury
News
i100
Arts and Entertainment
Shock of the news: Jake Gyllenhaal in ‘Nightcrawler’
filmReview: Gyllenhaal, in one of his finest performances, is funny, engaging and sinister all at once
Arts and Entertainment
Shelley Duvall stars in Stanley Kubrick's The Shining
filmCritic Kaleem Aftab picks his favourites for Halloween
News
people
Arts and Entertainment
Kit Harington has been given a huge pay rise to extend his contract as Jon Snow in Game of Thrones
tv
Life and Style
Taste the difference: Nell Frizzell tucks into a fry-up in Jesse's cafe in east London
food + drinkHow a bike accident left one woman living in a distorted world in which spices smell of old socks and muesli tastes like pork fat
Sport
Luke Shaw’s performance in the derby will be key to how his Manchester United side get on
footballBeating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Life and Style
Google's doodle celebrating Halloween 2014
tech
Arts and Entertainment
Don’t send in the clowns: masks and make-up conceal true facial expressions, thwarting our instinct to read people’s minds through their faces, as seen in ‘It’
filmThis Halloween, we ask what makes Ouija boards, demon dolls, and evil clowns so frightening?
News
peopleFarage challenges 'liberally biased' comedians to 'call him a narcissist'
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

    Finance Assistant - Part time - 9 month FTC

    £20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

    Marketing Manager

    £40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

    Market Risk Manager - Investment Banking - Mandarin Speaker

    £45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Day In a Page

    The drugs revolution starts now as MPs agree its high time for change

    The drugs revolution starts now as MPs agree its high time for change

    Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
    The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

    Gotcha! The camera is turned on tabloid editors

    Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
    Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

    Fall of the Berlin Wall

    It was thanks to Gorbachev that this symbol of division fell
    Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

    What makes ouija boards and demon dolls scary?

    Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
    A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

    Rose Rouse's safari in modern Britain

    Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
    Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

    'My world of no smell and odd tastes'

    A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

    Matt Parker is proud of his square roots

    The "stand-up mathematician" is using comedy nights to preach maths to big audiences
    Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

    Paul Scholes column

    Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
    Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

    Frank Warren column

    Call me an old git, but I just can't see that there's a place for women’s boxing
    Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

    Adrian Heath's American dream...

    Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
    Simon Hart: Manchester City will rise again but they need to change their attitude

    Manchester City will rise again but they need to change their attitude

    Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
    Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

    A Syrian general speaks

    A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
    ‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

    ‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

    Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
    Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

    Fall of the Berlin Wall

    History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
    How to turn your mobile phone into easy money

    Turn your mobile phone into easy money

    There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes