Take your pick from 1,200

Income or growth? High risks or security?

It's easy to give yourself a headache when it comes to finding the right PEP, since there are more than 1,200 from which to choose - a figure that does not include self-select schemes in which you make your own investment decisions.

Whether you are a first-time buyer or a seasoned investor, you should think carefully before deciding which scheme to invest in this tax year.

The first thing to consider is what you want from your PEP - are you looking for income or capital growth?

If you want an income, you should check what the manager hopes to achieve, how often you will be paid and if you can vary the level of income you take.

If you are looking for a high income, such as 8 per cent a year, you cannot expect your PEP to achieve much capital growth. High income seekers tend to be steered towards corporate bond PEPs, although many general PEPs also invest primarily for income.

Those in search of capital growth should look for a PEP with this as their main objective. Next, you should consider how much risk you are prepared to take. The greater the risk the higher the potential rewards. As the table shows, however, the average growth from many PEPs is far higher than returns on sums left in a building society.

There are some PEPs which give the option of taking variable amounts of income or leaving the capital to grow. The GA PEP offers a choice of two unit trusts - income and growth - which allow income to be taken. But the income may also be reinvested.

Some investment sectors are more risky than others. Funds investing in new small companies have a higher risk profile than funds which invest in a wide range of large well-established companies. Similarly, a single company PEP - where you are relying on the performance of just one company - can be more hazardous than investing in a general PEP.

Next you need to decide if you want to manage the investments in your PEP or if you want to buy them ready-packaged in a fund. Some managers offer self-select PEPs.

Once you have narrowed the choice down you should start to look at the individual performance of PEP funds, as it does give some indication of how successful a fund manager has been in the past.

You also should consider the quality of the PEP manager. Does the investment house have a good track record across its whole range of funds? Sometimes it will be down to a single "star" manager - if that one individual were to leave how would the fund fare?

The volatility of funds also is important. Some funds grow steadily, others can rise and fall dramatically in value. So if you are not of a strong constitution this type of fund may not be for you

Micropal, the fund analyst, gives funds a volatility rating based on past performance. If you are considering a volatile fund, be sure to invest only money which you will not need at short notice because you do not want to have to cash in your investment while the fund is on a downward spiral.

Charges vary between schemes. Self-select PEPs and others where the underlying fund invests in all or most of the shares of a particular index - known as trackers - have low charges. Where the fund is actively managed, costs are likely to be higher.

While it may be tempting to opt for a PEP with low charges, you should never use this as the sole factor for choosing a PEP. As the tax year draws to a close, many PEP managers offer discounts on their PEP charges to try to attract last minute business.

Many of the big fund managers attract your business directly from advertisements like those on these pages. But there are other ways to invest in a tax- free plan, including the PEP "boutiques" or discount shops which offer a range of plans, including those from well-known investment houses.

These discount brokers work on commission and win business by splitting this commission with their customers in the form of a discount on the fund manager's charges.

Discount brokers receive commission for every PEP they sell. So even if you come across a plan with no initial charges, such as M&G and Fidelity's no-fee PEPs, you may still be able to get these cheaper by going through a discount broker.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search

Payday lender Cash Genie forced to repay £20m to ripped-off customers

The high-cost credit company preyed on vulnerable people struggling because of the recession

Mark Carney warns that the decision is likely to come into 'sharper relief' by 'the turn of the year'

An interest rate rise may be on the way - act now to secure a better mortgage deal

Competition has driven rates down but they could start drifting upwards

Santander 123 is attractive for those seeking interest on credit balances

Switching your current account? Pick one that reflects the way you run your finances

Andrew Hagger has carried out some research to try to establish which accounts are strongest in each of the different areas

A reader hit trouble after booking accommodation in a St Andrews hostel for the Open

Questions of Cash: 'Golfing break landed in the bunker when the price on the booking site was way below par'

One reader encountered a problem when booking accommodation at the St Andrews Tourist Hostel through HostelBookers

The Money Shop this week became the latest payday lender to have an ad banned

Payday lenders slammed for 'misleading' claims: charities say they're still not doing enough to help borrowers

Debt charities say there seems scant evidence to back up CFA's latest report

The crooks, like these in the 1955 film The Ladykillers, are waiting in the shadows as people cash in their savings

Savers are embracing their pension freedom ... and so are the scammers

There have been fresh warnings that scammers are trying to trick people into using liberated cash to invest in dodgy schemes

Don't get burnt: holidaymakers should check their plastic

How to avoid costly debit or credit card charges on overseas trips

Taking the wrong plastic can be a costly mistake, leaving you paying over the odds for your holiday spending money to the tune of £68, maybe more

From as far back as the Seventies, women have been drawn to the tables, attracted by the sense of feeling like a celebrity

Gambling is on the rise - so is enough being done to combat problem betting?

More and more of the 'AB' classes are joining the vulnerable in playing the odds, as Neasa MacErlean reports
No sunshine: Not all pensioners will be as happy as these women

Freedom reform leads to £1.8bn run on pension pots

But the right of over-55s to withdraw their retirement nest-eggs opens the door to scammers.

Mark Carney; '[there is] no immediate need to increase interest rates'

Interest rates: five things you need to know about a rise in rates by the end of the year

Mark Carney said the decision to raise interest rates was likely to come by 'the turn of the year'

Viagogo struck a discordant note when tickets for Ed Sheeran didn’t arrive

Viagogo withdraws tickets from sale the day before Ed Sheeran's concert, and the story repeats

Ticket frustration a go-go as gig-goers are let down again. Funny how bad publicity helps 

Just 39 per cent of 25-45 year-olds own a home in London, which has the lowest rates of young homeowners in the country (Getty)

Have you been given the wrong mortgage? City Watchdog says it is 'unclear' why two-fifths of loans were recommended

Stringent new rules were supposed to stamp out mortgage mis-selling, but only 59% of mortgage borrowers were given suitable advice

ATM access is to be investigated

The 'bank calls' suggesting to move the cash into the 'safe' account might steal your money

The alarm bells are ringing over 'no hang-up' fraud

Rip-off energy prices are here to stay, even though watchdog has slammed the Big Six

Big firms are skilled at increasing profits while millions struggle with fuel poverty

High costs on the high street: the largest players in British banking may not have enough incentive to be competitive

If a bank calls about transferring money because of fraud, you risk losing your life savings

A retired nurse lost £14,000 to unscrupulous rogues

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 Adviser - OTE £24,500

    £22500 - £24500 per annum: Recruitment Genius: Inbound and outbound calls with...

    Recruitment Genius: Business Development Executive / Sales - OTE £40,000

    £18000 - £40000 per annum: Recruitment Genius: This fast growing Insurance Bro...

    Guru Careers: Research Associate / Asset Management Research Analyst

    £40 - 45k (DOE) + Benefits: Guru Careers: A Research Associate / Research Anal...

    The Green Recruitment Company: Graduate Energy Analyst

    £20000 Per Annum: The Green Recruitment Company: Summary: The Green Recruitm...

    Day In a Page

    Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

    Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

    Turkish President Erdogan could benefit politically from the targeting of the PKK, says Patrick Cockburn
    Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn or a return to a Labour government

    Our choice is years of Tory rule under Corbyn or a return to a Labour government

    Yvette Cooper urged Labour members to 'get serious' about the next general election rather than become 'a protest movement'
    Singapore's domestic workers routinely exploited and often abused in the service of rich nationals

    Singapore's hidden secret of domestic worker abuse

    David Cameron was shown the country's shiniest veneer on his tour. What he didn't see was the army of foreign women who are routinely exploited and often abused in the service of rich nationals
    Showdown by Shirley Jackson: A previously unpublished short story from the queen of American Gothic

    Showdown, by Shirley Jackson

    A previously unpublished short story from the queen of American Gothic
    10 best DSLRs

    Be sharp! 10 best DSLRs

    Up your photography game with a versatile, powerful machine
    Solved after 200 years: the mysterious deaths of 3,000 soldiers from Napoleon's army

    Solved after 200 years

    The mysterious deaths of 3,000 soldiers from Napoleon's army
    Every regional power has betrayed the Kurds so Turkish bombing is no surprise

    Robert Fisk on the Turkey conflict

    Every regional power has betrayed the Kurds so Turkish bombing is no surprise
    Investigation into wreck of unidentified submarine found off the coast of Sweden

    Sunken sub

    Investigation underway into wreck of an unidentified submarine found off the coast of Sweden
    Instagram and Facebook have 'totally changed' the way people buy clothes

    Age of the selfie

    Instagram and Facebook have 'totally changed' the way people buy clothes
    Not so square: How BBC's Bloomsbury saga is sexing up the period drama

    Not so square

    How Virginia Woolf saga is sexing up the BBC period drama
    Rio Olympics 2016: The seven teenagers still carrying a torch for our Games hopes

    Still carrying the torch

    The seven teenagers given our Olympic hopes
    The West likes to think that 'civilisation' will defeat Isis, but history suggests otherwise

    The West likes to think that 'civilisation' will defeat Isis...

    ...but history suggests otherwise
    The bald truth: How one author's thinning hair made him a Wayne Rooney sympathiser

    The bald truth

    How thinning hair made me a Wayne Rooney sympathiser
    Froome wins second Tour de France after triumphant ride into Paris with Team Sky

    Tour de France 2015

    Froome rides into Paris to win historic second Tour
    Fifteen years ago, Concorde crashed, and a dream died. Today, the desire to travel faster than the speed of sound is growing once again

    A new beginning for supersonic flight?

    Concorde's successors are in the works 15 years on from the Paris crash