Personal Finance: PEPs taking on pensions

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The Independent Online
IN JUST 72 days it will be Budget time again, and the lobby groups are forming to whisper in the Treasury's ear.

The PEP managers association's proposals, along with scores of other special pleadings, recently landed at the Treasury in the pre-Budget orgy of good ideas that just happen to swing things in the originator's direction.

But this little scheme has caught the Treasury's eye, and the PEP men have been invited in for more discussions later this month.

Pepma, the association of personal equity plan managers, has managed to cook up a rich mixture of ideas to promote the extension of private investment through personal equity plans. The most appealing is to create a PEP retirement plan.

PEPs already provide a pretty attractive alternative to a conventional pension. PEPs and pensions are thus mirror images of each other. Although you do not get tax relief on the way into a PEP investment like an official pension plan, you get tax-free cash at the other end, while pensions payments (but not the lump sum) are taxable.

But with a PEP, if you suspect your life may not be long you can always change your mind and spend, spend, spend.

Pepma suggests that a tailor-made PEP could be made more pension-like. It could offer investors full tax relief on the way in, and in return investors would be locked in for five years or until retirement.

It also proposes that those unable to make pension contributions at the moment because they do not have earnings that count for tax relief - such as homemakers, volunteer charity workers and those living off capital - would be able to put money into a PEP pension.

This could help many non-working wives who rely on their husbands' provision and risk losing out if the marriage does not last.

Pepma does not really believe that after generous tax treatment the Government would allow tax-free cash to come flowing out at the other end, so it suggests one-third might be taken as cash, with the rest traded in for a lifetime income - although income and capital gains earned within the PEP would still escape all the taxes.

Another way of shaping PEPs to make them more attractive for retirement savings would be to allow older people a larger investment in PEPs. The pounds 6,000 limit could be extended to pounds 8,500 a year after age 36, pounds 12,000 a year after 50, and pounds 14,000 for the over 60s, suggests Pepma.

But this would reinforce the view that it is the really wealthy who benefit most from the tax benefits of PEPs.

It was widely believed that the Government was going to put a ceiling on PEPs at the last Budget, as such large sums were accumulating outside the tax net.

The Treasury may have looked at PEP savings against the huge, monolithic insurance companies that run pension funds, and decided that the time has come to shift the balance. Anything that gives investors more choice and greater flexibility must be worth a long, hard look.

The Government needs to make saving up for old age much more attractive if it is going to relinquish the responsibility for providing us with reasonable comfort in the grey years, without giving too much away to the already well-featherbedded.

AN OPERATION known as Bumblebee is buzzing around London trying to crack down on burglary. As part of it, the police are setting up treasure troves of stolen loot so that burglary victims can try to identity their stolen items.

The one opposite Liverpool Street station last week was no glittering cave of the wealthy's playthings, but a rather sad affair.

Dusty cabinets, mostly filled with tatty jewellery and ornaments, were peered at by anxious, disappointed faces. The glossy leaflets about locks, burglar alarms and photographing your valuables suddenly made sense.