The researchers assumed a pounds 6,000 lump sum PEP investment in a UK equity fund aiming to generate growth. They also assumed a standard 9 per cent- a-year growth rate for each fund.
This gives a "level playing field" and the researchers then took out the manager's charges on each fund to give a pure indication of how much you are paying for an investment.
Sixty-nine UK equity growth funds provided data for the survey. Index- tracking funds from Marks & Spencer and Virgin come out on top of the tables (see box above right) over one year and three years, and they also feature in the top five over five and 10 years. An index-tracking fund is run by computer and aims to mirror the performance of the index it follows, usually the FT-SE 100 or All Share.
After three years, your pounds 6,000 would be worth pounds 7,517 in the top M&S fund. The bottom fund (69th), Family Assurance's Family Charities Ethical Trust, would have turned that into just pounds 6,770. Based on the 9 per cent growth prediction, a fund with no charges at all would have generated pounds 7,770. The charges on the most expensive fund have already been pounds 253 more than on the cheapest. And because of the effect of "compounding" over time, this gap will grow. (Compounding means that the growth of your original investment one year forms the basis for growth the next year - and the more taken out in charges, the less is left to grow.) So, after 10 years, pounds 6,000 invested in a Dresdner RCM UK Growth Trust would be worth pounds 13,300: a massive pounds 2,890 more than the Family Assurance ethical PEP (pounds 10,410).
Gordon Maw from Virgin Direct says: "Fund managers always take charges out of the equation and talk about performance. Customers want good performance and low charges."
You will see a "key features" document giving details of charges when you buy a PEP, but many people don't look at these figures. Melanie Thomas, deputy editor of the Money Marketing survey, says: "According to a report by the Personal Investment Authority [PIA], 54 per cent of respondents said they would not use a key features document. All the research shows that what really influences the investment process is past performance."
That's because past performance is always highlighted by management groups and independent financial advisers (IFAs). And there's no doubt a top manager can offset the effect of charges. Mark Dampier is head of collective fund investment at advisers Hargreaves Lansdown in Bristol: "I don't choose an investment because its charges are low at 0.5 per cent a year. A good fund manager can be at least 2-3 per cent a year better than that. If you can get that extra performance, you can more than make up the charges."
Roger Cornick, deputy chairman of Perpetual, is sceptical of the value of this survey. "It is hit and miss. No discount offers are taken into account. They assume a 5 per cent initial charge on a PEP and the reality is that we may stipulate 5 per cent in the literature but reduce it by 2 per cent on a permanent basis."
Mr Cornick says it has always been the case that investors look for a solid brand name when they buy a PEP, not the charges. "If you were buying a hi-fi or a fridge, would you look at the electrical stuff ? You buy on brand and design and take performance for granted."
Perpetual figures show your investment would need to generate 0.54 per cent extra growth a year (assuming a 9 per cent annual growth rate) to overcome each extra 0.5 per cent of management charges.
The hard part is finding a manager which will deliver over the long term. Research last month from analysts at investment bank HSBC shows that 80 per cent of actively managed UK funds fail to outperform their benchmark index over 10 years.
You can keep the cost of buying a PEP down by buying a tracker fund, a unit trust PEP from a discount broker or choosing investment trust PEPs, which are cheaper. Brokers typically rebate 3 per cent of a 5-6 per cent initial charge, giving you pounds 180 to reinvest or take as money.
The 'Money Marketing' Focus Investment Survey also carries details of all UK registered collective funds, with performance and rankings from S&P Micropal. It costs pounds 4.95 from newsagents, or call 0171-292 3730.