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.