Stash it or spend it? How to handle your windfall

Steve Lodge looks at the options as the Alliance & Leicester hands out its shares
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The Independent Online
Tomorrow, finally, is payout day from the Alliance & Leicester, the first of a series of windfalls due this year.

The prospect of millions of customers of the A&L and other building societies and insurers getting handouts of pounds 1,000-a-head has triggered a scramble to attract the money into savings products. "Free" windfall personal equity plans, windfall accounts and cheap deals for swapping bonus shares into other investments are among the most prominent offers, but there are other choices to consider - not least spending the loot.

More than a quarter of the 2.5 million A&L savers and borrowers due the free shares have opted to sell them through a free dealing service set up by the A&L. They should each get more than pounds 1,000 - double that if they are both saver and borrower - which should be paid by the end of April.

Others may also look to sell once the shares start trading on the stock market, but they may do better by waiting. There are concerns that the price of the shares could be held back initially because of the number of people already committed to selling. But over time the shares are expected to do well: dividends and profits totalling 20 per cent or more this year are possible. Unless you need the cash, it is probably worth hanging on to them.

People with credit-card debts that are incurring interest of 20 per cent or more are among those who might consider selling as the interest they are paying will offset any further gains on the shares. But even they might benefit from waiting a while.

If you do plan to keep the shares, it is worth considering holding them in a PEP. This will make all dividends and profits on the shares tax-free.

If you want to put the shares in a PEP, you should do this within 42 days. During this time most PEP companies will take in the shares without charge and they will not count towards the usual PEP investment limits. This means you can still invest another pounds 6,000 on top (pounds 3,000 with single- company PEPs). But there is no need to rush to buy the first PEP offered as better deals may come to light, while for some people it may not be worth while having a PEP at all, given the value of the shares they are getting. With most PEPs there will be ongoing charges that offset tax benefits.

Furthermore, with many of the best-value windfall PEPs on offer, you need to bear in mind that you will also be restricting your PEP investment choices for the rest of the tax year. You can only have one pounds 6,000 PEP and one pounds 3,000 single-company PEP each tax year and the windfalls can only be put in PEPs taken out this tax year (not those already held). Many of the best deals restrict further PEP investments to one company's funds.

The table above includes deals on offer from the A&L and some of the most popular companies. All of them are pounds 6,000 general PEPs that will take any number of different windfalls. Fidelity and Perpetual look to be two of the best that will suit. If you want to put other investments in your main pounds 6,000 PEP this year, they will have to be in funds from that company, but both offer a good choice of top-performers.

Fidelity makes no charges for holding your windfall shares in a PEP for two years and no charges ever if during that time you invest more money with the company. With Perpetual the charge is pounds 4 for each dividend.

The A&L's own Self-Select PEP deal may suit people who want to choose their own share portfolio, but its annual fee can probably be bettered. Its Capital Growth PEP is one of a number of cut-price deals for exchanging your windfall shares for another investment; Virgin and Schroder are also offering variations on this theme and are probably better choices for people who do not want to hang on to their shares.

Even if you want to hold the shares for now, you should also consider what a chosen PEP will charge for subsequently selling your shares or for swapping them for investment in a fund. Fidelity, for one, charges nothing.

The trouble with putting A&L shares in a pounds 3,000 single-company PEP, leaving you flexibility for your choice of pounds 6,000 PEP, is that the charges may well cancel out any tax benefits, particularly if you do not top up your shareholding. Furthermore, if you are due two sets of windfall shares, a single-company PEP will only hold one.

We will keep you updated with the PEP choices. Free factsheets are also available from the unit trust trade association, Autif, on 0181 207 1361; from Towry Law, a financial adviser, on 0345 889933; and from the investment trust managers' trade association, the AITC, on 0171 431 5222.


Alliance & Leicester (0990 785163): 1 per cent plus VAT (pounds 25 minimum) for holding in a Self-Select PEP, which gives free choice of any other investments. Or swap shares immediately to invest in the A&L's Capital Growth PEP. No requirement to add more money.

Fidelity (0800 414171): no charges at all until April 1999 for holding. No charge beyond then so long as a further investment of any size is made with Fidelity by that time; otherwise, a flat charge of pounds 15 a year.

M&G (0171 626 4588): single charge of pounds 8 per windfall per year (pounds 16 if you are due both A&L and Halifax, for example). No requirement for investment with M&G.

Perpetual (0800 420042): pounds 4 charge per dividend (pounds 8-plus per windfall per year). No requirement to add more money.

Schroder (0800 526535): shares can only be held in an investment trust PEP, with a charge of 0.6 per cent per year. Otherwise, Schroder will offer a free swap of your shares for a choice of PEPs. Unless you are an existing Schroder investor, you must top up your windfall investment to pounds 3,000 or set up a monthly savings plan.

Virgin (0345 959595): shares can be held for up to a year without any charge but are then swapped for Virgin PEP investments. New Virgin investors must invest a further pounds 1,000 at the same time. Shares can also be swapped for immediate investment in a Virgin personal pension plan at a cost of pounds 2.


Free shares that can be PEPped

Windfall Average When you

value will get it

A&L pounds 1,200 21 April

Halifax pounds 1,300 June

Norwich Union pounds 1,000 June

Woolwich pounds 1,200 7 July

Northern Rock pounds 1,400 October

q Windfalls not directly eligible for PEPs are: Bristol & West's pounds 250- plus of preference shares, due in August; shares from Colonial Mutual, due in May; the payout to Scottish Amicable policyholders later this year, most of which will be in bonuses added to the value of existing policies.

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