PEP Survey: A beginner's guide to selecting the right PEP

Interested in managed, self-select or corporate plans? Tony Bonsignore looks the range of PEPs on offer

BY FAR the most popular type of PEP is the general PEP. This can invest in a wide variety of different vehicles from collective investments such as unit trusts and investment trusts through to corporate bonds and ordinary company shares.

The majority of general PEPs are linked to either unit trusts or investment trusts. These are known as managed PEPs, and it this type of plan that you will see advertised most often in the money pages of the national newspapers and on roadside billboards.

In a lot of these plans, the manager automatically invests all your money in a particular fund or investment trust. For instance, invest pounds 6,000 in a L&G Index Tracker PEP and all that money, minus charges, will then be invested into the L&G Tracking fund.

Some managed PEPs allow you to invest in a number of funds. An example of this is GT's Global Thematic Growth PEP, where 75 per cent of your money will be invested in GT's UK Key Trends fund, with the remainder in the GT Global Dynamic Theme fund.

Most managers also offer a managed PEP that allows you to choose between a range of investments run by that company.

A less common type of general PEP is the corporate PEP, which invests the full pounds 6,000 in one company's shares. Usually intended to encourage share ownership among a firm's employees, anyone can choose to invest in a corporate PEP. Bradford & Bingley and Halifax both manage a large number of this type of PEP on behalf of a wide range of companies.

For those wanting complete control over their PEP investments, however, they should choose a self-select PEP. These are available from banks, stockbrokers and independent financial advisers.

Self-select PEPs allow you to invest in whichever shares, unit trusts, investment trusts or corporate bonds you choose. But they are intended for experienced investors only, given their higher dealing costs and the risk of picking the wrong stocks.

Ian Millward, investment marketing manager at Chase de Vere, says "We would advise most people to go into managed PEPs. The self-select PEP is only really suitable for the investor who thinks he can outperform the market. But most armchair investors will not do as well, because of the charges if nothing else."

The other main option is the single company PEP. This allows you to invest in just one company's shares up to a maximum of pounds 3,000 each tax year.

Some providers run "managed" single company PEPs, which decide which stock to invest in on your behalf. The main advantage of single company PEPs is that they can sit on top of your general PEP entitlement. This means you can invest up to a total of pounds 9,000 in one tax year.

To cash in on this, a couple of groups, including HSBC, have established companies on the Dublin stock exchange which qualify as both general and single company PEPs. These are managed funds, but because they are listed on an European Union stock market they qualify for the single company PEP.

Tony Bonsignore writes for `Financial Adviser'