Fees come down as business builds
Sunday 19 February 1995
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.
- 1 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 3 Mystery man who gave mum heart-warming note on train 'wanted to put a smile on her face'
King Salman: Just five days in, Saudi Arabia's new king has already overseen a beheading
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Mystery man who gave mum heart-warming note on train 'wanted to put a smile on her face'
Michelle Obama highlights harsh restrictions faced by Saudi women after meeting King Salman without wearing a headscarf
Chilling drone footage captures Auschwitz ahead of 70th anniversary of liberation
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...