Cut through the hype to land the right PEP

Never mind the sales frenzy, here are the facts

If you think the PEP advertising frenzy is bad now then you won't enjoy March. Personal equity plans shut for business on 6 April, after which it will be impossible to take a new one out. And investment managers are spending tens of millions of pounds to do everything possible to lure you in during the next six weeks.

PEPs do represent a good deal, provided you are fully aware of the risk you are taking. The PEP rules allow you invest up to pounds 6,000 in shares (known as "equities", hence the "equity" in "personal equity plan"). The shares are usually bought by a unit trust or investment trust that pools investors' money.

You don't need to declare a PEP on your tax return and everything you make is tax free. (There is also a further PEP allowance of pounds 3,000 so long as you invest the money in a single company.)

If you don't have the money to invest now, don't worry. The new individual savings accounts (ISAs) will replace PEPs in April and you can put exactly the same type of stock market investment into an ISA.

You can put pounds 7,000 into a stock market ISA in the next tax year, and pounds 5,000 each year after that. No wonder many commentators have labelled them "PEPs by another name".

The tax benefits of PEPs and ISAs are a bonus. But remember, while a PEP does increase the money you can make from your investment, it does not remove the risk. Equity investment is a risky business.

Many providers are currently trying to tempt first-time investors into tracker PEPs. This sort of fund simply copies one of the major share indices - usually the FT-SE 100 index of the UK's biggest companies or the FT- SE All Share, made up of all the companies traded on the stock market.

If that index goes up then your money goes up by the same percentage - although charges and errors in tracking the index will mean you will probably get back slightly less than the growth in the markets.

The key to choosing which tracker PEP to invest in is the charges - the lower the charge, the more you will make. Justin Modray, an IFA at Chase de Vere Investments in Bath, says: "Legal & General's All-Share Tracker is one of the cheapest on the market, with no initial or exit fees and an annual management charge of just 0.5 per cent."

Alternatively, if you want an actively managed fund, Mr Modray highlights Jupiter's Income Fund as one to consider. But he warns investors to prepare themselves for the high charges that active funds carry - 4 per cent on the initial investment and a further 1.5 per cent each year on this particular PEP.

There's no need to pay high charges if you can make up your own mind about which PEP you want to buy. A discount broking firm will send you useful literature and performance statistics. You buy the PEP and get most or all of the initial charge rebated. Most discount brokers (see below) are rebating the 4 per cent charge on Jupiter PEPs.

You can sidestep some of the risk from shares by buying a corporate bond PEP. These funds invest in bonds (IOU notes) issued by large companies. They are geared towards paying an income rather than building capital, but many people re-invest the income into their PEP.

Mark Dampier, head of research at Hargreaves Landsdown, an IFA, says newcomers should take a cautious view: "You should go for something with a decent yield but not too racy - CGU's Monthly Income Plus and Credit Suisse's Corporate Bond are two good funds."

But if you want to get a higher return some bond PEPs are giving 8 per cent or more a year, tax free. However, they do carry more risk. The extra return comes from the perceived extra risk of buying bonds issued by companies with a lower credit rating than those held in the more conservative funds.

All PEPs are available cheaply through discount brokers: Chelsea, 0171- 351 6022; Elson, 0800 096 1111; Hargreaves Lansdown, 0117-900 9000; The PEP Shop, 0115-982 5105. To find a local IFA call 0117-971 1177.

Tony Bonsignore is news editor at 'Financial Adviser' magazine.

Free PEP guide offer

The first 50 Independent on Sunday readers to e-mail or send in cards will receive a free copy of the Moneywise Which PEP? guide, worth pounds 3.50. The guide tells you how to get the best PEP deal and gives advisers' tips for best buys.

Write to PEP Offer, Personal Finance, Independent on Sunday, One Canada Square, London E14 5DL or e-mail your name and address to i.berwick@independent.co.uk.

Sport
Mourinho lost his temper as well as the match
sportLiverpool handed title boost as Sunderland smash manager’s 77-game home league run
Voices
Sweet tweet: Victoria Beckham’s selfie, taken on her 40th birthday on Thursday
voices... and her career-long attack on the absurd criteria by which we define our 'betters', by Ellen E Jones
Arts & Entertainment
Billie Jean King, who won the women’s Wimbledon title in 1967, when the first colour pictures were broadcast
tv
News
Snow has no plans to step back or reduce his workload
mediaIt's 25 years since Jon Snow first presented Channel 4 News, and his drive shows no sign of diminishing
VIDEO
Life & Style
food + drinkWhat’s not to like?
Voices
Clock off: France has had a 35‑hour working week since 1999
voicesThere's no truth to a law banning work emails after 6pm, but that didn’t stop media hysteria
Arts & Entertainment
Maisie Williams of Game of Thrones now
tvMajor roles that grow with their child actors are helping them to steal the show on TV
Life & Style
Lana Del Rey, Alexa Chung and Cara Delevingne each carry their signature bag
fashionMulberry's decision to go for the super-rich backfired dramatically
Arts & Entertainment
Kingdom Tower
architecture
Life & Style
Sampling wine in Turin
food + drink...and abstaining may be worse than drinking too much, says scientist
Arts & Entertainment
Game of Thrones writer George R.R. Martin has been working on the novels since the mid-Nineties
books
News
Easter a dangerous time for dogs
these are the new ones. Old ones are below them... news
News
Brand said he
people
Voices
Actor Zac Efron
voicesTopless men? It's as bad as Page 3, says Howard Jacobson
Sport
Roger Federer celebrates his victory over Novak Djokovic in the Monte Carlo Masters
sport
Arts & Entertainment
The monster rears its head as it roars into the sky
film
Voices
For the Love of God (2007) The diamond-encrusted skull that divided the art world failed to sell for
its $100m asking price. It was eventually bought by a consortium
which included the artist himself.
voicesYou can shove it, Mr Webb – I'll be having fun until the day I die, says Janet Street-Porter
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit