Don't panic: it's not that bad:YOUR MONEY

Recent stock market falls should not deter PEP investors. Steve Lodge reports

FOLLOWING last week's stock market jitters, many thousands of savers will be hesitating over whether to use their PEP allowances before the 5 April end-of-tax-year deadline. Existing investors too may be asking whether they shouldn't be bailing out now before a full-blooded stock market crash.

The last week or so has seen share prices flung around on the back of worries on Wall Street in the US. On Tuesday the UK stock market - as measured by the FT-SE 100 index of blue chip shares (Footsie for short) - closed at a low for this year, and this was the fifth day in a row the stock market fell. The pessimists - bears in stock market parlance - say the bull run of the last year has come to an end and that the prospect of a Labour government will hold back share prices for the forseeable future. Is a crash on the way, some ask.

The first point to note is that the stock market has not fallen that much (yet). Last Tuesday's Footsie low of 3,639 was still fewer than 150 points off the stock market's peak - put another way, shares as a whole lost less than 2 per cent of their overall value. The rest of last week saw things get no worse. And what may have been billions of pounds off share prices for apocalyptic headline writers was still small beer compared with the 19 per cent UK shares put on in value last year.

Second is that for those now thinking of taking out PEPs, in themselves those falls are a good not bad thing. You pick up more shares for your money. If you believe that the stock market is going to be the highest- yielding home for your savings in the long term, the opportunity to buy slightly cheaper should be welcomed. Of course, last week's troubles may just be the start, but in the long-term history suggests that riding out the ups and downs of the stock market is worthwhile. More often than not, shares go up over a calendar year while over five years - the sort of period any stock market investor should be prepared to put aside his or her money for - it is extremely rare for the stock market to be lower and it is pretty likely that it will beat the building society.

In addition, investors have a number of solutions to the stock market's current problems - and not just selling existing investments and steering clear:

q Some schemes will allow you to set up the PEP with cash - so using your tax-free allowance - but delay investing the money properly until you feel happier with the outlook for stock markets. In the main these are what are known as self-select PEPs. But some of the more popular unit trust-based PEPs will also offer a facility for drip-feeding money you put into a Pep this tax year into the stock market over coming months.

q You can put pounds 1,500 of your PEP allowance into unit or investments trusts investing in non-European markets, some of which may be less under threat. While a US unit trust might not be adviseable currently, many commentators believe Japan or the Tiger markets of south-east Asia are a good bet.

q A new breed of guaranteed PEPs are being launched that may prove attractive to the cautious. These limit the possible fall in the value of your investment or guarantee you at least your money back after a certain period, while also providing you with potential for stock market growth. Marks & Spencer, Lloyds Bank, Edinburgh Fund Managers and Legal & General are among the most high-profile. The trouble is - as with all guaranteed stock market investment products - you pay for the security: there is no investment free lunch. The main ways you pay are in higher charges compared with other PEPs, limited stock market growth or loss of dividends you might otherwise be paid. M&S, to take one example, charges an additional 1.76 per cent of the value of your investment every year for the guarantee that after five years you will not have lost money.

Jason Holland, director of Best Investments, a London-based financial adviser which produces a regularly updated guide to guaranteed investments, says that in the long run investors will do better with a PEP that instead of offering guarantees, is wholly exposed to the ups and downs of the stock market. Even with a short-term stock market setback which knocked 10 per cent off share prices, after another five years investors will probably be worse off in a guaranteed PEP, he says.

q If you are close to retirement, look at how closely linked to the stock market your personal or employer pension arrangements are. If you have a set retirement date in the near future it could be foolhardy not to try and protect the value of your pension pot. Most personal pensions will offer ways of reducing risks from a falling market, by allowing you to switch into deposit-based funds, for example. Many pension providers will automatically switch your money as you approach retirement, but it is worth checking this is the case.