Suitable time for a PEP talk
Saturday 13 May 1995
Take, for example, the sales pitch that promises: "We pay a higher interest rate than the others." All things being equal, a higher rate is achieved at the price of a higher risk. Provided it is clearly signposted, this is fair enough. It is when the essential information gets lost in the thicket of small print that investors should start to worry.
Yesterday the Inland Revenue called a halt to the period of consultation about its proposed rules for corporate bond PEPs. In late June or early July the new PEP regulations will be cleared for launch.
At this point another sales ploy will kick in. "First is best." But it ain't necessarily so. There will be many new bond launches and they will vary. Investors need not be hustled into buying the first products they see.
The thing to bear in mind about a PEP is that it is only a tax-free zone. Whether a PEP is good value or not depends on the performance of the investment within it - after charges have been deducted. If the company that issued a corporate bond became insolvent, you could lose much of your investment. (Remember Polly Peck).
Rather than rushing to buy the first PEP with a beguiling advertisement, cool-headed investors will ask themselves a number of questions.
One key question is: "Do I want to make my own investment decisions, albeit with some help, or do I prefer to have my investments managed for me?"
If you want to hand over the responsibility of selecting the investments, you have the choice of a managed PEP or a unit trust PEP. With a managed PEP your money is simply entrusted to the PEP provider, who makes all the investment decisions. However, you pay for management and administration costs.
With a unit trust PEP, instead of buying shares for you in a relatively small number of companies, the unit trust provider pools your money with that of other investors to create a fund investing in a wider range of companies. You receive "units" rather than shares and again the administration expense is a consideration.
Many investors prefer the personal involvement of owning shares directly. Some would like to go a stage further and choose for themselves the companies in which to invest. This is called a self-select PEP.
The self-select route involves no management charges as you in effect manage your own PEP. The charges involved are only for share dealing and administration. Self-select PEPs can be used to shelter existing as well as new qualifying investments and you can also change the bonds or shares within your PEP as frequently or as infrequently as you like.
Self-select allows you to combine the guaranteed return of capital and fixed income offered by a corporate bond with the tax-free benefits of a PEP. You can, if you wish, re-invest the income to provide a larger tax-free income when you need it - for example, when you retire. This allows you to tailor your investments more precisely for your own needs.
Corporate bonds are not the only new PEP qualifier. A couple of similar investments also now qualify - convertibles and preference shares.
Their different characteristics will suit different investors. Corporate bonds are certificates issued by companies stating they will pay a fixed rate of interest and repay the capital at the end of a specified term.
Convertibles are similar except that at the time of maturity you can either have your investment returned or converted into shares in the company issuing the bond.
Preference shares usually pay a fixed dividend income independent of the profits made by the issuing company. If the company went bust the preference shareholders would get their money back before the others.
The author is director of business planning at Barclays Stockbrokers.
Questions Of Cash: 'Your bank card may have been cloned'
Government's Pension Wise guidance service is up and running
Bargain Hunter: BT improves its mobile reception with 'incredibly competitive' deals
Mark Dampier: What price equities when cost cutting does nothing for profits?
Offset your mortgage and save thousands
- 1 Finland schools: Subjects scrapped and replaced with 'topics' as country reforms its education system
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 4 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
- 5 Zayn Malik quits One Direction: Hundreds of workers request compassionate leave following band member's exit
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Germanwings plane crash live: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station