Barclays: a pup of a PEP

READERS' LIVES; A miserable PEP... fed up with stocks... which pension? Your financial queries answered

I bought my first PEP from Barclays in 1987 and invested the maximum then allowed - after the stock market crash of that year, it should be stressed. I have now had to cash it in and received what I regard as a poor return. Why? BH, Leeds

To describe the return on your Barclays Stockbrokers PEP as "poor" is something of an understatement, especially when you bear in mind that the return should have been enhanced by its tax-free nature. You have made no withdrawals from this PEP over its 10-year life, and yet you got back just pounds 2,871 on an investment of pounds 2,400 - an annual return averaging around just 1 per cent.

Readers' Lives asked Barclays to comment, giving Barclays the chance to put its best spin on the performance of your PEP. The bank, however, seems unable to offer any positive comments on its stewardship of your money, although it does say: "We would like to re-emphasise that shares do tend to fluctuate in value." Barclays talks of "unfortunate investment decisions made in 1988 and 1989 and with no appropriate corrective action being taken until 2 February 1993".

The performance of your PEP since that time is described as "reasonable for what is a low-risk investment approach". Between February 1993 and July 1997 your PEP grew in value by 56.5 per cent, which compares with 71 per cent from the FT-SE 100 index over the period. Barclays makes no reference to the charges it has levied, though charges will undoubtedly have affected the final cash-in value.

Perhaps Barclays' most telling comment is this: "It is also important to appreciate that the legislation which determines the level of contribution to a PEP, and a stockbroker's flexibility to reinvest, was much more limited at the time in question than it is today." This suggests that the rules governing the very first PEPs were badly drawn up and made it hard for Barclays to give a decent tax-free return for your (and to make an acceptable return for itself).

What happened was that the first PEPs had to be invested directly in individual shares, rather than in more broadly spread investment and unit trusts. Later the rules did become more flexible. The shares Barclays picked turned out to be duds. Eventually your savings were switched into investment trusts, and for the last few years performance has been more reasonable.

But for Barclays to blame the rules is a bit rich: the bank was under no obligation to provide PEPs for its customers if it felt that the early PEP rules were too limiting. Even 10 years ago there were people who questioned the wisdom of a government policy which encouraged small investors to invest only pounds 2,400 directly in the shares of just a few companies, and who questioned the ability of financial companies to levy economic charges.

Your specific experience with this PEP touches on a range of broader issues. In retrospect, says the financial services industry, the PEP rules of 10 years ago were lousy. But, also in retrospect, financial services companies have got it wrong big-time on various things - for example, the selling of personal pensions, mortgage overlending and the housing market. There's every chance that in the next decade they will be found to have got it wrong on the selling of endowment mortgages in the 1980s and contracted-out personal pensions.

Does the averageconsumer have any defence against the errors of this industry? Constant scepticism combined with a deep suspicion of fads and marketing hype provide a good starting point for self-defence.

I'm fed up with stock market panics. I have a handful of privatisation and windfall shares and a PEP, all of which I was thinking of cashing in anyway. What is the best way of doing this? AB, North London

First, you are not alone in your irritation with the City's apparent ability to switch from optimism (`bullish') to pessimism (`bearish') at the drop of a hat. Having been told that shares and the stock market are homes for long-term saving, it is unsettling for fickle City pundits to be constantly trying to second-guess what will happen when the market starts its next session, rather than where shares will be in a few years' time.

With that in mind, you shouldn't automatically be looking to sell just before any crash or setback. Over the long term shares rise more than they fall, so in the long term you should make money. However, if you were already planning to sell investments to fund a major purchase such as a car, obviously it makes sense not to take too many risks, and to get out of the stock market while the pundits continue to talk about the possibility of further problems.

For selling your shares, there are a range of low-cost stockbrokers with fees starting at around pounds 10 for holdings in a single company worth up to pounds 1,000. The very cheapest operate by post, but you might prefer a service that can give you a firm price over the phone. CaterDeal (01708 742288) is one of the cheapest of this kind. Its Phonetrade service has a pounds 10 registration fee (registration can be done by return of fax). Dealing costs are then pounds 9 for shares in a single company worth up to pounds 500, pounds 10 up to pounds 1,000 and pounds 17.50 up to pounds 2,000.

It is too late to take advantage of the free selling facilities set up by the windfall-yielding societies, with the exception of Bristol & West. Its free dealing service, incidentally, is also run by CaterDeal.

To cash in your PEP, contact your PEP manager. In some cases there may be a charge. You could also consider transferring your PEP money to a manager offering a PEP with a downside guarantee or even to one investing in stock markets which you think offer better prospects (Europe rather than the UK, perhaps). Investment managers will also offer special deals which involve swapping individual shares for more widely spread investment funds or PEPs.

I have been employed as a GP practice nurse for eight years and have been paying into a personal pension plan. I now have the chance to join the NHS pension scheme. What should I do: join the NHS scheme? Transfer my personal plan into the NHS scheme? EM, Cleveland

Firstly, we should say that what you need is individual advice - the issues are complicated and do depend on your personal circumstances - and neither this column nor the NHS can give this. So treat what follows as general guidance.

There is a very good chance that joining the NHS scheme will be in your interest. And if, like most mortals, you cannot grasp the complications, or if the pros and cons seem to be very finely balanced, give the benefit of the doubt to the NHS scheme. But do consider paying a fee to an independent pensions expert for an objective analysis of your options. (It may be best to avoid `free' commission-based financial advice.)

From 1 September, the right to join the NHS pension scheme is being extended to GP practice staff who have a contract of employment with a GP. By that date, the GP should have all the literature needed to understand how the NHS scheme works. If you have any queries there is a helpline you can ring - the number is 01253 774800.

The NHS offers a first-class employer's pension scheme which includes the valuable benefits of full index-linking of the pension once in payment and an automatic tax-free lump sum on retirement. How does it compare with your personal pension? In simple terms, you need to look at what you would pay into each scheme and what you would get out of each.

Work out what percentage of your after-tax pay each scheme costs you and compare the likely pension benefits at the age of 60, the normal retirement age of the NHS pension scheme. You'll need a projection from the personal pension provider, but do remember that you can get only a `guesstimate' and it may be on the optimistic side. Assumptions about investment returns and annuity rates may turn out not to be valid. The potential pension from the NHS, based on your actual salary and likely future salary, is easier to forecast.

If you do decide to join the NHS pension scheme, you should then ask your personal pension provider for a transfer value. Find out what sort of pension this will buy you in the NHS scheme and compare it with the personal pension projections. Make it clear that you require a projection of the personal pension based on the assumption that you will be making no further contributions to the plan.

If you do decide to join the NHS scheme you will be able to make extra contributions to buy added years of membership. This can be a valuable option.

q Write to Steve Lodge, Personal Finance Editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number. Alternatively, you can fax 0171-293 2096/2098, or e-mail: s.lodge@independent.co.uk. Do not enclose SAEs or any documents that you wish to be returned to you. We cannot give personal replies or guarantee to answer every letter. We accept no legal responsibility for any advice given.