There is a last chance to take advantage before 4 April of a Personal Equity Plan (PEP) and hoard some savings away from the tax man.

The question is whether it is worth the effort.

PEPs have been enormously popular - funds in them now total nearly
£50 billion. But in many cases they have been over-hyped:

1. Few people benefit from PEPs being spared from capital gains tax.
     
2. The extra charges often make tax savings minimal.
     
3. The tax back on dividends is being halved next year, and is destined to be phased out. Which makes some of the 'Quick, Buy Now' advertisements highly questionable.

The answer, as always in the financial field with around 28,000 different products, is to box cleverly.

In the current climate the answer is not whether to buy a PEP but WHICH type of PEP you should buy to continue benefiting from their advantages.

Instead of a General PEP take a look at Corporate Bond PEPs, (maximum £6,000 in both cases) which are invested in fixed interest vehicles, usually bonds from major companies. In his wisdom, the Chancellor has decided that interest on these is okay for getting tax back, but not the returns on general PEPs which get their income from share dividends.

They also usually have lower initial charges than PEPs invested in shares. Yields currently range from 6.2% to 8.63%, with prospects of some capital growth. Tax free, in an era of low inflation, that's good by any yardstick.

But keep boxing. There are funds, such as the Legal and General Fixed Interest Corporate Bond, with no initial charge, only 0.5% management charge and yielding 6.74%.

Compare that with some which charge 4.25% initial (immediately reducing your £6,000 savings by £255) and 1.25% annually!

Bond funds also have the benefit of spreading the risk by pooling your savings with those of others and buying a wide range of bonds, minimising the risk element (and, as always, remember that the higher the yield the higher the risk).

For a fund that makes charges or to buy a single company's corporate bond (like the solid CGU insurance company) make use of the handful of brokers who now advertise their willingness to give you most, or all, of the commission back. Elson Associates plc (Tel: 0800 096 1111) hand back the whole of the initial rake-off, being content with the 0.5 per cent annual commission they get.

As with general PEPs you can invest a further £3,000 by buying a single company corporate bond PEP.

Also worth getting details from are CommShare Ltd., who in addition even return half the annual commission (Tel: 0808 100 5045).

Do not fall into the trap of thinking that dealing direct with the PEP company will save you money. The finance industry always takes care of its own, to the extent that if you deal direct they still deduct up to 5% initially to discourage you from thinking you don¹t need expert advice, however expensive.

Replacing PEPs will be the ISA (Individual Savings Accounts). Designed to spread the save-habit among more people, the government has, almost
inevitably, made them far more complicated and has reduced the amount you can save each year.

ISAs need looking at as a separate subject when they come on stream next April. Already a number of large insurance companies have said they will not be offering them.
  

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