Fees come down as business builds

ALTHOUGH PEPs were initially intended to encourage investment directly into shares by the public, the overwhelming majority of the money invested goes into unit trusts and investment trusts. These are known as "collective PEPs".

It has been an eventful year for the fund managers of collective PEPs. M&G's Managed Income PEP, launched a year ago, pioneered the idea of not imposing a charge on entry. The astonishing success of this fund made other managers reconsider their charging structures. M&G followed up that success by launching the Growth PEP last October.

At the same time, however, IFAs were demanding a regular commission for looking after PEP investments. The IFAs pointed out that the commission for arranging a PEP, normally three per cent, was not enough to meet the costs of looking after investors in the future. As a result managers are now often paying a "trail" commission of 0.5 per cent a year on the value of the fund.

The announcement that PEPs would be allowed to invest in corporate bonds and preference shares set another task for the PEP contract designers - find the right mix between growth and income. This is complicated by the fact that the Inland Revenue has yet to finally determine exactly what bonds PEPs will be permitted to invest in. The industry has complained that the original proposals were too tightly drawn, and that there are not enough suitable bonds.

In the midst of this confusion, what innovations are collective PEP managers coming up with?

Martin Currie promotes PEP investment through its Asian Opportunities and Emerging Markets funds. Previously, these did not qualify for PEP investment. However, after recognition of the exchanges in Korea, Malaysia, Thailand and Mexico by the Revenue, they now qualify for investment at £1,500.

Clerical Medical has its eyes firmly on the new bond rules. Conscious of the potential scramble, it has launched its Extra Income PEP early. Initially it will invest 50 per cent of its funds into equities and 50 per cent into bonds, but it will switch over fully into bonds as soon as the new rules come in. It estimates the gross yield at eight per cent a year, tax free.

Norwich Union is also looking to take advantage of the new rules, but its Balanced Income Trust will remain invested in a mix of fixed interest securities and equities. It aims at a yield of seven per cent a year, tax free.

Meanwhile, discounts abound on initial charges. Credit Suisse is offering a two per cent discount on all its PEP funds from 1 March to 6 April. A new Exeter Equity Income fund has a discount of one per cent until 24 February. Hill Samuel has made a permanent cut in its charges on PEPs and unit trusts.

Schroders is launching its Income Builder with no additional charge for the PEP on plans taken out before 1 March. All the money invested will go into the investment trust.

Ivory & Sime is offering a guarantee to investors before 28 April - a promise that if the investor dies, the payout from the PEP will equal the original investment.

Amid this profusion of offers, investors should remember it is ultimately investment performance that determines the success or failure of a PEP investment.

Start your day with The Independent, sign up for daily news emails
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film
Arts and Entertainment
Brendan O'Carroll as Agnes Brown in the 2014 Mrs Brown's Boys Christmas special
tvCould Mrs Brown's Boys have taken lead for second year?
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
news
PROMOTED VIDEO
News
i100
Sport
Robin van Persie scores the third for Manchester United with a perfectly-guided header
footballLive! Chelsea vs West Ham kicked off 10 Boxing Day matches, with Arsenal vs QPR closing the action
Arts and Entertainment
Amy Adams and Christoph Waltz in Tim Burton's Big Eyes
film reviewThis is Tim Burton’s most intimate and subtle film for a decade
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
music14 more 'Rebel Heart' tracks leaked including Pharrell Williams collaboration
Sport
football
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all