PEP talk for those tempted by bigger pensions

THE TAX year ends on Friday, which means that this really is your last chance to take up this year's PEP allowance.

Inevitably, people will have been put off by the stock market's recent jumpiness. And for many people that hesitation is understandable. After all, you will still be able to buy a PEP in the new tax year as soon as the market looks less vulnerable.

But there is at least one group of people that should seriously consider the virtues of PEPs this week. These are people - in particular the relatively young - in company pension schemes who are thinking of making last-minute additional voluntary contributions (AVCs) to the bolt-on extra pension plans offered by employers. The tax relief on these cannot be carried forward into the new financial year and can seem an important tax break to take up. But there is much to be said for putting the money into a PEP instead.

AVCs offer tax relief at your highest rate on your contributions, their value grows tax-free, the money can only be got back in the form of a drip-fed pension when you retire, and this pension is subject to income tax.

PEPs, by comparison, offer no upfront tax relief, but all investment profits and income are tax-free, and these can be cashed in at any time.

One concern for AVC buyers is that income tax rates might be higher in retirement than they are now, offsetting the kicker of upfront tax relief. But the much greater flexibility of the PEP is probably the more persuasive point.

In general, you should only put money into PEPs that you can afford to leave alone for at least five years - to give yourself the best chance of benefiting from the greater potential of the stock market as a home for your savings.

But PEPs at least still give you the option of taking a tax-free income from day one, or getting your money back at any time if you need it for holidays or other big-ticket items.

And my recommendation for PEP buyers? Legal & General's Index-Tracking PEP. It is the cheapest of its kind and should deliver what it sets out to - stock market performance. This, in turn, is likely to put most other PEPs to shame over any reasonable investment period. Buy it from a discount broker such as the London-based Chelsea Financial Services and you will get it even cheaper. The minimum investment, however, is a chunky pounds 3,000.

MORE power to the Your Money pages. Following our look (17 December 1995) at the problems of an offer to holiday makers in Tenerife and Majorca to save money by remortgaging while getting a timeshare thrown in for free, the Office of Fair Trading has reported it is "minded to revoke" the credit licence of the broker involved, Leicester-based Mortgage Advice Centre. The OFT is prepared to listen to evidence from the firm that it should retain its licence, but if it decides against the broker, the broker will be kicked out of the mortgage business.

The key problems we identified were that attractive quotes presented to holiday makers - saving them money overall - turned out not to be as good as they had first seemed, and that the selling took advantage of slacker consumer protection in Spain and its holiday islands.

Your Money welcomes letters on "nasties" inflicted on consumers by financial firms. We cannot guarantee we will be able to investigate each one, nor can we reply individually (so please do not enclose anything you want returned). But all letters will be read, relished and, where appropriate, used as research for articles.

Write to: Steve Lodge, Personal Finance Editor, Independent on Sunday, One Canada Square, Canary Wharf, London E14 5DL.

Start your day with The Independent, sign up for daily news emails
Sport
The Queen and the letter sent to Charlie
football
Arts and Entertainment
Eurovision Song Contest 2015
EurovisionGoogle marks the 2015 show
News
Two lesbians hold hands at a gay pride parade.
peopleIrish journalist shares moving story on day of referendum
Arts and Entertainment
<p>
<b>Kathryn Williams</b>
</p>
<p>
When I was supporting Ray La Montagne I was six months pregnant. He had been touring for a year and he was exhausted and full of the cold. I was feeling motherly, so I would leave presents for him and his band: Tunnock's Tea Cakes, cold remedies and proper tea. Ray seemed painfully shy. He hardly spoke, hardly looked at you in the face. I felt like a dick speaking to him, but said "hi" every day. </p>
<p>
He was being courted by the same record company who had signed me and subsequently let me go, and I wanted him to know that there were people around who didn't want anything from him. At the Shepherds Bush Empire in London, on the last night of the tour, Ray stopped in his set to thank me for doing the support. He said I was a really good songwriter and people should buy my stuff. I was taken aback and felt emotionally overwhelmed. Later that year, just before I had my boy Louis, I was l asleep in bed with Radio 4 on when Louis moved around in my belly and woke me up. Ray was doing a session on the World Service. </p>
<p>
I really believe that Louis recognised the music from the tour, and when I gave birth to him at home I played Ray's record as something that he would recognise to come into the world with. </p>
booksKathryn Williams explores the works and influences of Sylvia Plath
News
Liz Kendall played a key role in the introduction of the smoking ban
newsLiz Kendall: profile
Life and Style
techPatent specifies 'anthropomorphic device' to control media devices
Voices
The PM proposed 'commonsense restrictions' on migrant benefits
voicesAndrew Grice: Prime Minister can talk 'one nation Conservatism' but putting it into action will be tougher
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?