All the ads claim a magic key to income and performance, but clearly they cannot all be right. Many investors turn to independent financial advisers (IFAs) for advice. So which PEPs are the advisers recommending?
Mason Ball & Associates are IFAs in Bagshot, Surrey. They are members of the Countrywide IFA network of more than 550 member firms. Countrywide issues an approved list of products that offer low charges, flexibility and good performance.
The two fund managers from that list which Ernest Noad, financial services manager at Mason Ball, recommends are M&G and Perpetual.
"Perpetual offers a 2 per cent discount at present on both their income and their growth funds, which effectively negates most of the up-front charges," Mr Noad says. "It's a long-established company with an excellent track record in producing returns."
The M&G PEPs he recommends are the Managed Income PEP and the Growth PEP. The first, launched a year ago, had attracted £750m by the end of December, making it one of the largest M&G funds. Its key attraction is that it does not levy charges on investments as they come in; instead it makes a charge when the units are cashed. This charge reduces each year that the PEP is held, disappearing altogether after five years.
"This means that every pound the investor puts in is invested straight away," says Mr Noad. "It also pays a good monthly income, tax free. If investors do not need the income, they can leave it in the PEP."
However, if the investor is specifically looking for growth, Mr Noad would recommend M&G's Growth PEP. It works on exactly the same basis as the Income PEP, but the selection of M&G unit trusts is geared towards growth - it invests in smaller company and international funds, for example. The fund was launched in October 1994 and had attracted nearly £60m in investment by the end of December.
For those who want to invest in shares rather than unit trusts, Mr Noad recommends the new Johnson Fry Hy5 PEP. "This is based on an unusual system of investing only in shares that are in the FT30 index. Each year the 10 highest yielding shares out of the 30 are identified. From those 10, the five with the lowest share price in pence are chosen for investment. The idea is that these shares should have the greatest scope for capital growth."
The Johnson Fry Hy5 PEP was also picked by Terence Brealey, an IFA in Potters Bar, Hertfordshire. He is a member of the DBS Financial Management network of IFAs, with more than 1,250 member firms nation-wide. Although the Hy5 PEP is not on the DBS recommended list, Mr Brealey says he still likes it. "The system they use would have outperformed most PEPs in the past few years," he says. "Because they are only picking from the FT30, they are selecting from the best of the blue chips and their criteria should pick those most likely to grow in the coming year."
He also likes the charging structure used by Johnson Fry, which is similar to that of M&G - no charge on entry but a charge on withdrawals. This was also an attraction for Mr Noad, but he warns that investors should look at PEPs as at least a five-year investment.
"If investors are not happy to tie up their capital for that length of time," says Mr Noad, "they should not be investing in a PEP at all."
Another scheme Mr Brealey likes is a split-capital investment trust PEP from Henderson. In their simplest form, split-capital investment trusts have two different classes of shares, one of which takes all the income generated by the fund, and the other which takes all the capital growth but no income. Henderson offers the PEP with income or growth shares.
"I like the way that the investor can make a clear choice between income and capital growth," says Mr Brealey.
In general Mr Brealey feels there are a lot of PEPs around which look good. "It is a cut-throat market at present, and fund managers are competing heavily for business. They are coming up with more and more innovative products with lower charges, and that can only be good for the customer."