| There are now less than 60 Pep
shopping days to the end of the current tax year.
Therefore if you haven’t taken your Pep out
yet, be sure to reserve your 1997/8 tax free
allowance through netPEP. Two frequently asked
questions by would-be Pep investors right now
are:
Why should I take out a
Pep now when the Government has just
announced that they are going to be
discontinued in April 1999?
Is the stockmarket likely
to fall and so lose me money?
1) Why buy a Pep now?
It is true that Peps are being discontinued
but they are going to be replaced by Individual
Savings Accounts (ISAs) in April 1999. ISAs will
enjoy the same tax free benefits which Pep
investors enjoyed. In addition the Government
proposes to allow existing Pep investors to
transfer their Peps to an ISA up to a maximum of
£50,000. There will be a period of 6 months from
April 1999 when these transfers can be carried
out.There is even talk that the Chancellor will
relax this limit.
But to be safe, if you have scope within this
£50,000 ceiling, it makes sense to reserve this
year’s tax free allowance and so ensure that
you can transfer the maximum permitted to an ISA
at the appropriate time.
2) What about the stockmarket?
The performance of the UK stockmarket over the
past year has been very strong so a slow-down
should not come as a surprise when it happens.
But should you delay investment now and so miss
out on your £6,000 tax-free allowance?
Timing one’s investment to coincide with
an upward market run or just after the market has
suffered a set-back to take maximum advantage of
the ensuing recovery is everybody’s dream.
In reality no-one achieves perfect timing without
a degree of luck - even the full-time
professionals get it wrong. And if you were lucky
last time, the chances are you won’t be next
time.
That’s why saving money through a Pep
must be regarded as a medium to long term
arrangement. If you look at the FTSE 100 Index
graph below you can see how well you would have
done since May 1987 even if you had bought just
before the crash in October 1987.
Saving through a FTSE Tracker Pep now and in
the future through an ISA could potentially be
one of the most powerful methods of accumulating
a sizeable nest-egg. The returns on equity
investment have been shown over the years to be
superior to other forms of saving, albeit with
more risk. And to earn these returns without
liability to both income and capital gains tax
provides the icing on the cake.
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