Corporate PEPs cut costs

Single-company plans often prove the cheapest way to buy shares. Christine Stopp takes a look at what's on offer
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The Independent Online
AFTER single-company personal equity plans were launched in January, 110,000 were opened in the first three months, with pounds 270m invested.

These pounds 3,000-a-year 'corporate' plans may provide only the company's employees with a tax-free envelope for the proceeds of a save-as-you-earn or profit-sharing scheme. Big companies are using them to allow anyone to buy shares, however, and, like ICI (see table), they may subsidise the costs to the investor. A corporate scheme is usually the cheapest way to buy a company's shares.

Quite a few PEP managers offer SCPs which are not tied to one company. These may be self-select, or managed, where the plan manager makes a choice for you and may switch in the future as necessary.

Some self-select plans are restricted to a limited range of companies. Lloyds offers a list of 100-plus blue-chips. Others will deal in any qualifying stock. Unquoted shares do not qualify unless they have been acquired through an SAYE or profit- sharing scheme.

Managed PEPs will have a current standard choice. Cable and Wireless is the stock on offer through Kleinwort Benson's 1992 plan. Fidelity is currently buying BAA for PEP investors.

Charges, as the table shows, vary widely, with some plans costing almost 10 times more than others. Cheapest in our table to buy the full pounds 3,000-worth of stock and manage it for a year was Lloyds Bank at pounds 26. Most expensive, at pounds 202.50, was Henderson. The ICI corporate PEP, managed by the Bradford & Bingley Building Society, was a little dearer than Lloyds at pounds 32.50. These calculations assume that the investor is not an existing customer and does not want immediate dealing.

Some SCPs (though none in the table) are on offer only to existing PEP clients. Others charge more to non-clients. Henderson, for example, has a 4 per cent initial charge to non- clients and 3 per cent to clients. In some cases, cheaper dealing is available if you are prepared to wait for a bulk dealing day. Barclays charges 1 per cent with a pounds 10 minimum for postal dealings, or 1.45 per cent, minimum pounds 18.50, for phone dealings.

Lloyds charges only 0.2 per cent on its twice-a-month bulk dealing system. Bradford & Bingley plans have a dealing delay of up to three weeks.

It really only makes sense to have a PEP of any sort if you intend to hold it long-term. Managers argue that SCPs are not suitable as a first-time PEP, and should be used only if you have already saved the full pounds 6,000 in a general PEP. What if you hold some shares and want to 'shelter' them within a PEP? This has become a difficult area, since a PEP must be started with cash, and sheltering existing holdings is frowned on by the Inland Revenue. Most SCP managers will sell your holding and buy it back again within the PEP. Some offer concessionary dealing rates.

The importance of charges should be emphasised: a pounds 3,000 investment yielding 5 per cent currently will pay dividends of pounds 150 a year gross, with a tax bill of pounds 37.50 for the basic-rate taxpayer. If the SCP charges are much more than the tax due, it will be some years before the PEP makes a true tax saving.

----------------------------------------------------------------- A GUIDE TO SINGLE COMPANY PEPs ----------------------------------------------------------------- Charges * Initial Annual Dealing ----------------------------------------------------------------- Barclays (postal) pounds 5 0.5% 1% (071-403 4833) (min pounds 12.50) (min pounds 10) Barclays (phone) pounds 5 0.5% 1.45% (071-403 4833) (min pounds 12.50) (min pounds 18.50) Cable & Wireless 0.5% 0.75% 0.5% (071-606 1768) (out of plan) Fidelity 2% 1.5% 0.2% (0800 414161) Henderson 3%1 1.5% 1.25% (071-638 5757) ICI Paid pounds 10 0.75% (0800 585253) by ICI Kleinwort Benson 5% 0.5% - (071- 956 6600) Lloyds Bank - pounds 20 0.2%2 (0444 459144) (in bulk) Reyker Securities pounds 20 1% 1.5% (071-499 9097) ----------------------------------------------------------------- * VAT excluded; 1 Non-clients 4%; 2 Immediate deals 1.65%. -----------------------------------------------------------------

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