Peps deadline

By JEFF PRESTRIDGE, MONEY EDITOR AT LARGE
Updated: 19:00 EST, 15 December 2002

TIME is running out for more than 21,000 Pep investors with unit trust giants Schroders and M&G who have been told they can no longer hold shares directly in their tax-free plans.

Unless investors act quickly, the shares will be sold and the proceeds used to buy units in an investment fund chosen by the company.

Direct equity Peps - or windfall Peps as they were often called - were popular in the early Nineties when many building societies converted to banks. By putting the resulting windfall shares into Peps, investors protected future capital gains and dividends from the taxman.

But now the companies that offered the equity-based Peps say they can no longer afford to manage them and that collective funds are more effective for the vast majority of Pep customers.

Fund rivals Invesco Perpetual and LeggMason have already stopped Pep investors holding direct equities.

The 9,000 Schroders' customers who hold one or more single company Peps have only until the end of the year to decide what happens to their Peps.

They could opt for the shares to be sold and the proceeds used to buy into a Schroders fund of their choice, but still within the tax-free Pep wrapper.

Alternatively, they could transfer their Pep to another provider such as stockbrokers Pilling & Co or Reyker Securities.

These companies still allow directly held shares in their Peps. The third option is to request that their Pep is wound up, resulting in the loss of their tax-free savings wrapper.

If Schroders' Pep investors do not indicate their choice before December 31, the company will sell their holdings and invest the proceeds in its UK Equity unit trust while maintaining the tax-free status of investors' plans.

M&G's 12,000 windfall Pep customers have a deadline of January 27. The options are similar to those offered by Schroders, though investors wishing to transfer a Pep will only be able to do so to stockbroker Charles Stanley.

NOT everyone is happy with M&G and Schroders. Peter and Barbara Herrick from Stamford, Lincolnshire, have several Schroders Peps with holdings in Abbey National, drinks group Diageo and Rentokil Initial, the pest control and security group. They have transferred to Peps run by Reyker Securities.

Peter, a 61-year-old solicitor, is angry at Schroders' withdrawal from equity Peps. 'The letter from them was abrupt,' he says. 'There was no apology for abandoning a service they couldn't get us to sign up to quickly enough a few years ago. Thankfully, our adviser, Willis Owen in Nottingham, pointed us in the direction of Reyker Securities.'

Andrew Watson, a director of London-based Reyker Securities, says: 'Yet again, we have seen the interests of small private investors in this country damaged by companies restricting investment choice.'

But Simon Anderson, M&G's director of corporate communications, claims that 70% of the company's Pep customers who are affected are transferring the value of their holdings to M&G funds.