NEW horizons have opened up for retired people with life savings
locked up in either bank or building society who are expected to take
full advantage of Chancellor of the Exchequer Kenneth Clarke's easing of
eligibility for corporate bonds and convertible shares, coming for the
first time within the spectrum of Personal Equity Plans.
Whether they be managed or self-select, PEPs as they are better known
in the marketplace, seems to be popping up everywhere. As fund manager
Stewart Ivory succinctly puts it: these days you can hardly move without
tripping over a PEP. People seem to be talking about them all the time
and everyone's got one to sell.
At the outset however it is best to issue a warning: remember that a
PEP represents a risk investment. Share prices can go down as well as up
and the value of your PEP can fall below your original investment, with
income dervived from share investments liable to fall as well as rise.
With that said, there is little doubt about the popularity of PEPs
which have been on the market for several years. Majoring on tax break
advantages they are regarded as representing a medium to long term --
say five to 10 years or longer -- investment.
Now with the Chancellor extending the scope of PEPs in his recent
Budget, the tax-free savings scheme introduced by the Government to
encourage wider share ownership by the general public enters a new era.
The many retired people who make up an important and ever-growing
section of British society are likely to be targeted by advisors and
brokers alike, as the annual battle between PEPs providers hots up on
two fronts.
First, there are the new bond-based PEPs sanctioned by Mr Clarke,
while more conventional companies who believe income is best generated
by investing in the long term in the Stock Market, continue to
concentrate on share-based plans.
New PEPs-orientated products just launched on the Market are designed
to secure investors' savings in the coming tax year, and collectively
represent a lightening of the recent gloomy feel in equity markets. Up
until now all but a handful have produced returns well ahead of the
rates offered by building societies, for example. This is all set to
change.
A retired person taking the first steps into the PEPs world should
seek independent financial advice but bear in mind to ask about discount
benefits when talking to either adviser or broker. Remember, there is a
lot of competition out there to handle your hard-earned cash.
For example, some discount brokers have started refunding all or part
of their commission to investors who need no advice, cutting the initial
charges by an average 3% on almost every unit-trust PEP. Others,
meanwhile, have negotiated extra discounts from the providers.
If you are contemplating a PEP investment you should perhaps look at
The Saints PEP from Stewart Ivory, or a new route for your savings
available this month when Royal Bank of Scotland Unit Trust Management
launches a new savings plan, with PEPs described as the most
tax-efficient method to invest and their plan designed of course for the
longer term investor.
For initial advice, Bank of Scotland makes available, free of charge,
a personal equity plans booklet, and packed with facts about both
managed and self-select schemes; while Chase de Vere Investment can
supply its PEPGUIDE, comparing no less than 1000 schemes to help you
make the correct choice. (#12.95, calling freephone 0800 526092.)
It is perhaps wise for new investors to ask about reducing exposure of
their savings to any sudden fall in equity prices. This can be offset
for example by investing through a monthly payment scheme rather than
making a lump sum investment.
The first three months of any year are always a busy period for the
PEP industry with thousands of individuals rushing to invest their #6000
annual allowance before the end-of-April tax year.
However, it is wise to remember that on retirement you enter that
positive time of life when you can afford to take your time to choose
the right PEP that suits your needs. Now with what independent financial
advisers the Aitchison and Colegrave Group describe as a new breed of
lower-risk high income PEPs on the market, thanks to Kenneth Clarke,
their strengths in predictability and security are likely to appeal more
to older investors.
After all, in the seven-year lifetime of the PEP, it is the over-50s
who have tended to be the most enthusiastic personal equity plan
investors.
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