The Chancellor's decision not to remove tax relief from holdings of PEPs above pounds 50,000 from October next year, and allow all PEP holdings to retain their tax-free status indefinitely, means that investors are free if they wish to take up their full entitlement of pounds 9,000 before the current tax year ends on 6 April, and a further pounds 9,000 in 1998-99.
But it has not only been the uncertainty about PEPs that caused a slower than usual take- up. Investors have also been nervous of the state of the stock market. As one mega bid follows another, the market has been rising to new peaks. And it is not just in the UK. It has been happening all around the main European bourses and on Wall Street. And the public is nowadays better educated about investment. It knows that markets cannot keep rising forever.
Furthermore, all those millions of holders who PEPped their windfall shares in the building societies and life assurers that have demutualised during the past year have already started their PEP schemes. They have not been joining in the usual February/ March rush to buy.
So PEP sales have been slower than in past years. At the beginning of March, Schroder Unit Trusts, for example, stated that its PEP sales were down 20 per cent compared with the same period last year. Others, including Guinness Flight Hambro, also reported lower sales.
Some PEP managers have responded in the only way they can, by cutting initial charges. This discounting, while at the same time maintaining commission rates paid to advisers, is an attempt to try to increase sales. Leading groups to have slashed buying costs include Mercury, Save & Prosper and Templeton, reducing their usual 3 to 5 per cent initial charge by two or three percentage points.
And, if anything, the discount war is intensifying. Recently, Save & Prosper announced that it was discounting the entire 5.5 per cent initial charge on its UK Growth and Income Fund for people investing pounds 4,000 or more of their PEP allowance. Those investing between pounds 1,000 and pounds 3,999 will pay an initial charge of 2.5 per cent. The 30-year-old fund, which looks after pounds 624m of investments, is a top quartile performer over one, three and five years, and currently yields 2.4 per cent. The group admits that it is letting investors "have their cake and eat it", says Daniel Godfrey, the group's communications director.
But discounting is not finding favour among all the PEP providers. "The public should not be encouraged to buy sophisticated financial products just because they are in a sale environment," says David Sachon, managing director of Threadneedle Investments.
The Personal Investment Authority told firms last year that they must not offer PEPs as though they were in a fire sale. While none has gone as far as implying this, there are signs of larger offers than ever. In order to compete, some groups feel that they are being forced into discounting charges. "We are simply trying to make some noise," says Duggie Adams, business planning director of Templeton. "We discounted last year. If anything, this PEP season is even more competitive. PEPs are desperately important for the unit trust industry and accounts for much of the new money coming in. If we don't get it now, we never will."
So long as investors are getting good advice, there should not be too much concern. And so long as you choose a PEP for the right reasons, getting a discount is an added bonus.
Ten simple PEP rules
q PEPs are only really suitable for taxpayers.
q A PEP is a tax wrapper for investing in shares.
q Only invest in a PEP because you believe equities will grow faster over the long term than other forms of saving.
q Do not invest just because of the tax advantages.
q You are only allowed one PEP manager this financial year.
q If you have sheltered any building society or insurance company shares in a PEP, you must use that manager.
q Up to pounds 6,000 can be invested in a general PEP in this financial year ending at midnight on 5 April.
q Unless you are an experienced investor, use a PEP that invests in unit or investment trusts.
q A PEP is often cheaper than investing directly in a unit trust and you get all the income and growth tax free.
q In this and the 1998/99 tax year, you can invest up to pounds 18,000 in general and single-company PEPs. A husband and wife each has his or her own individual PEP allowance.