PEP's & TESSA's

A plan where people over the age of 18 could formerly invest in the shares of UK and other EC companies via an approved plan manager or through qualifying unit trusts and investment trusts and receive both income and capital gains free of tax.

Maximum investment amounts were £6,000 for a general PEP and £3,000 for a single company PEP per tax year. PEPs were discontinued on 6th April 1999 and replaced by individual savings accounts (ISAs). PEPs in existence were allowed to continue to grow with similar tax privileges.

PEP transfer.

Investments sheltered in a Personal Equity Plan (PEP), which are transferred to a new manager without losing their tax-efficient status.

Transferring your PEP

There are many reasons why you might wish to transfer your PEP; poor investment performance, the PEP manager's service might not have been up to your expectations or you might require growth rather than income or visa versa. We can carry out a full financial review to ascertain the best course of action, taking into account the following areas :-

Performance

Probably the main reason why most people transfer PEPs is because of poor performance, but before you switch, check the performance of your PEP fund in the context of its performance over a three and five year period and since you invested. Compare these figures with other funds within the same sector. If, after comparing these returns, you decide that your PEP manager has done a good job with your investment, do nothing. However, if you are dissatisfied make a transfer without delay.

Management Charges

Fund managers have the right from time to time to change their management fee structure and a common complaint is that the charges have become too high. However, management charges should be considered with reference to fund performance. There are fund managers who charge higher fees but their fund performance is equally exceptional. Likewise, there are some that charge very little, which appears at first to offer the investor a better deal, but whose fund performance is equally low.

For your information, the average annual management fees range from 1% to 2% approximately. You must ask yourself, are you paying too much for your investment?

Will I be charged to transfer?

Your original investment may have a hidden price. Some PEP managers will charge you for the honour of leaving them to invest with another manager. There are some PEP plans that have no initial charges but do have penalties for switching within a certain period. Although the sum is unlikely to be large, you need to check how much any such charge is, and assess whether it is worth paying in order to transfer.

Will my new PEP manager charge me to invest with them?

Some managers will not and some will offer a discount off their normal initial investment charge to encourage transfers to them. You will need to assess whether any initial charge you pay is worth the performance or increased relevance of investment that you are expecting.

In summary, why should you consider a PEP transfer?

1. You now need income rather than growth from your investment.
2. You need growth rather than income from your investment.
3. You want better performance.
4. You want to pay less in the way of charges.
5. You want better service from you PEP & ISA manager.

Tax Exempt Special Savings Account (TESSA)

A five year tax free savings scheme for people aged 18 and over, introduced by the government in January 1991 and operated by banks and building societies, but terminated in 1999.

The maximum amount, which could be paid into such schemes over the five-year life of the TESSA, was £9,000 according to the following schedule:

TESSAs were discontinued on 5th April 1999 although those taken out before then are allowed to run their full five year term.

If you own a TESSA, you can do three things with it when it matures:-

1. You can withdraw the interest and capital free of tax, and either spend it or invest it elsewhere.
2. You can move the capital into a 'Matured TESSA Account'. The interest earned in the account after the maturity date will be taxable.
3. You can move the capital (but not the income) into an ISA (Individual Savings Account) where it can continue to grow tax free. It can either be paid into a special Tessa-only ISA account (a TOISA) or it can be paid into a cash only mini ISA. The move has to be made within 6 months of the maturity of the TESSA.

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