Another two cut-price, execution-only services were launched by independent advisers this week. And several leading PEP providers - including Schroder, Prolific, Perpetual, Fidelity, Gartmore, Prudential and Save & Prosper - have already reduced initial charges to 3 per cent or less from around 5.25 per cent.
But tax breaks make PEP investors long-term holders and annual management charges are creeping up. Prudential has just raised the annual charge on its Global Growth PEP to 2 per cent from 1.5 per cent, while reducing the up-front fee to 5.5 per cent from 6 per cent.
High annual charges can wipe out the tax benefits, and good performance over five years will far outweigh any benefit from low or no charges on a poorly performing PEP. This means doing a bit of research and making a regular study of the comprehensive league tables that the independent financial advisers produce.
The industry norm for annual charges is 1 to 1.5 per cent, depending on the risk profile of the PEP. The extra 0.5 per cent or 1 per cent every year can have a noticeable effect on long-term performance.
But there are also exit charges, to discourage holders from selling. M&G's Managed Growth and Managed Income PEPs levy exit charges starting at 4.5 per cent, reducing to nothing by the sixth year.
With annual charges coming more to the fore, investment trust PEPs can show a distinct advantage over unit trust PEPs. Many investment trusts levy flat rather than percentage fees and pay no commission to intermediaries. Even with a two-tier structure of PEP charge on top of the underlying investment trust charge, investment trust PEPs look very competitive.
The cut-price, execution-only services launched this week return initial commission to investors, either by cheque or through purchase of extra units.
PEPmaster, owned by MasterAdviser, offers a dealing service in the best- performing unit trust PEPs free of initial commission.
Invest Direct, owned by WRI, is making an introductory offer to new clients of a first PEP free of commission and handling charge. The offer is likely to last at least until 30 April. Looking ahead, Invest Direct aims to hand back at least two thirds of all commission it receives on any investment products, not just PEPs.