Hangovers after a PEP party: Many investors in bank and building schemes have received below-average returns. Caroline Merrell on a new survey

Hundreds of thousands of investors wooed into buying personal equity plans from their own bank or building society are receiving lower than average returns.

Chase de Vere Investments' annual PEP guide, published this week, shows the annual return on a unit trust PEP over three years is about 21 per cent, excluding initial and annual charges.

Only 13 of the 31 unit trust PEPs from banks and building societies offered higher returns.

Among those receiving under-average returns are 80,000 investors with pounds 870m in Lloyds PEPs and 60,000 with pounds 437m in a Midland Bank PEP.

Barclays, one of the biggest PEP providers, with pounds 687m under management for 100,000 holders, is better: three of its six PEPs out-performed the average.

John Kelly, investment director of Barclays Unicorn, said: 'The bulk of business is related to the client base of the bank. These will be risk-averse investors coming to the stock market for the first time. We are looking for consistency without taking an undue risk.'

Investors who bought their PEP through Halifax, the UK's largest building society, would have made slightly more than average - pounds 1,000 would have grown to pounds 1,799 over three years.

Bank and building society PEPs that out-performed did so only marginally. On average, pounds 1,000 invested in a unit trust PEP three years ago would now be worth pounds 1,795.

The 34,000 savers tempted into investing pounds 132m in Marks & Spencer PEPs after the company's high-profile launch into financial services six years ago will also be looking at an average performance.

Excluding charges, an investor would have made pounds 763 on a pounds 1,000 investment over three years.

Investors in the top performing unit trust PEP over the same period - Hill Samuel's UK emerging companies - would have more than doubled that amount. A pounds 1,000 investment without charges would be worth nearly pounds 3,000, an annual return of 40 per cent.

The same amount invested in a building society account three years ago would be worth about pounds 1,240.

Of the 12 PEPs offered by M&G, another of the UK's biggest PEP providers, 10 have out-performed the average.

Earlier this month, M&G abolished the front-end charge on its managed income PEP and, instead, added a staggered exit charge in a bid to maintain PEP volumes.

The Chase de Vere guide shows that investors would have made more money by investing in investment trust PEPs than unit trust PEPs, again excluding charges.

A pounds 1,000 sum in the average investment trust PEP would be worth pounds 1,563 over one year, pounds 1,941 over three years and pounds 2,290 over five.

In the average unit trust PEP, pounds 1,000 would be worth pounds 1,402 over a year, pounds 1,795 over three years and pounds 1,946 over five years.

Perpetual, the fund manager, has consistently been one of the best performing investment houses. Two of its PEPs are in the top five performing funds over three years. Its High Income fund and PEP Growth fund are third and fifth out of a total of 600 funds. Over three years they would have yielded 32 and 30 per cent respectively.

A pounds 1,000 investment in the High Income fund would now be worth pounds 2,384. Charges are 5.25 per cent initially and up to 1.5 per cent annually.

Henderson Touche Remnant occupies three of the top 10 performing investment trust PEPs. Its Electric & General, Lowland and TR Smaller Companies have yielded annually 34.64 per cent, 29.65 per cent and 29.28 per cent respectively over three years.

Finsbury Asset Management also occupies two of the top 10 slots over three years with pounds 1,000 invested three years ago in its smaller companies and growth investment trusts worth pounds 2,343 and pounds 2,245, respectively, excluding charges.

Hargreaves Lansdown is offering readers of the Independent a free copy of its 24-page PEP Handbook which provides a basic guide to PEPs and can be obtained by writing to Hargreaves Lansdown, Embassy House, Queens Avenue, Bristol BS8 1SB.

Chase de Vere's PEP guide costs pounds 9.95 and is available from Chase de Vere, 63 Lincoln's Inn Fields, London WC2A 3JX. Tel: 071-404 5766.

----------------------------------------------------------------- Table: BEST PERFORMERS ----------------------------------------------------------------- Top 10 qualifying unit trusts over three years Top 10 investment trusts over three years ----------------------------------------------------------------- Annual growth % ----------------------------------------------------------------- Hill Samuel UK emerging companies 40.62 St James's Place PEP Progressive 35.96 Perpetual High Income 32.74 Pembroke Pembroke 31.08 Perpetual PEP Growth 30.92 Providence Capitol Europe 30.54 N&P Higher Income 30.21 Newton General 30.05 Credit Suisse High Income Portfolio 30.01 Baillie Gifford UK Smaller Companies 29.80 Ivory & Sime Personal Assets 39.74 Law Debenture Law Debenture 38.86 Henderson TR Electric & General 34.64 Glasgow Shires 33.24 Fleming Fledgeling 32.32 Finsbury Smaller Companies Ord 31.99 Finsbury Growth 30.17 Baillie Gifford Scottish Mortgage 29.73 Henderson TR Lowland 29.65 Henderson TR Smaller Companies 29.28 ----------------------------------------------------------------- Growth rate does not include charges. -----------------------------------------------------------------