With so many schemes to choose from - many offering special deals - it can be difficult to make the right choice at the last minute.
Advisers say that consumers should not be seduced by some of the short-term discounts on offer among the major fund managers. They say the long-term performance of the fund is more important.
This week Hypo Foreign & Colonial told 70,000 investors with a total of pounds 500m in its high- income PEP that it intended to cut the income from 10 per cent to 9 per cent in June. It said it did not want hundreds of members of the public to buy the PEP before the end of the tax year, only to find that the income was to be cut two months later. The fund manager reduced the income from the PEP because it could not guarantee that the capital would not be used up in funding the high level of income.
The capital value of investment in the PEP has fallen nearly 5 per cent since the fund was launched a year ago, against a 32 per cent rise in the stock market as a whole.
The Independent on Sunday asked five advisers what PEP they would recommend to prospective investors.
Jamie Berry, managing director at Berry Asset Management:
'I would recommend Newton's General fund. It has a good track record and is up 31 per cent over one year. It would be a good fund for someone requiring capital growth.
'I would recommend Perpetual's high-income trust for someone requiring rising income. The fund is currently paying about 3.65 per cent income, and the fund has shown good capital appreciation. Perpetual is on a winning streak at this moment.'
Richard Campbell, managing director at Frizzell Life & Financial Planning:
'I am keenest on M&G's managed-income Pep which has no front-end charge - it must be good news.
'Another small reason is that it pays out monthly income and investors like to see monthly income.
'I like Hypo Foreign & Colonial's new income and growth investment trust which is in the process of being launched. The company has a good track record.
'I also like Perpetual's high-income Trust and James Capel's Generator PEP. The latter can pay out a good level of income.'
Andrew Oliver, investment director at Sedgwick Financial Services:
'James Capel's Generator PEP is very simple and straightforward. It is a low-cost plan linked to the index.
'I also like Schroder's income unit trust. It is a good investment house with a good strong investment track record.
'For someone who wants to take on a little more risk with the possibility of all-out growth, I would recommend Fidelity's special situations fund managed by Anthony Bolton. It has considerably outperformed. An investor would have to keep it for at least five years.
'It also benefits from a low initial charge.'
Phil Ashworth, corporate adviser at Co-op Bank Financial Advisers:
'We would recommend, among other investments, Perpetual's high-income fund and Eagle Star's high-income fund. We also like Skandia's Multipep which allows investors to switch around among different fund managers at reduced cost.'
Matthew Orr, partner at Killik & Co:
'It's really a matter of horses for courses. We like the Temple Bar and the Law Debenture investment trusts.
'We also like high-yielding shares such as Glaxo, which could yield 6 per cent, and Hanson.
'Another attractive area is the income-bearing shares of split-capital investment trusts, which can provide up to 9 per cent income.
'Scottish National and General Consolidated trusts offer this type of yield.'
Further details: 'The Pep Guide' is available for pounds 9.95 from Chase de Vere Investments, 63 Lincoln's Inn Fields, London WC2 3JX. Tel: 071-404 5766.
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