Wait before you PEP up savings

There is a not-so-new danger stalking the financial world - that people will buy a savings product for the wrong reasons, and lose out.

Springtime is when the marketing departments of companies selling tax- free personal equity plans - PEPs - go into overdrive. Their message is "use it or lose it" - buy before the end-of-tax-year deadline or miss out on the tax break.

There is no doubt that more people should have PEPs. They are excellent ways of saving for the longer term without the restrictions of pension plans. But beware of some of the reasons put around for buying now.

Danger number one is that people assume the high performance figures quoted in some advertisements will be repeated in the future. PEPs have performed well in recent years, but this also means the stock market is at an all-time high. And the market is now looking fragile. There is a good chance that many people buying PEPs at this time will not make a penny this year, and could even lose money.

A related danger is that savers buy simply because building society interest rates have been so low. This has been a particular gripe as some of the societies convert into banks. But by and large that money is now free to walk (see back page). However, savers who do shift from the building society to a PEP risk switching at the wrong time, just as society rates start to improve and the stock market heads for a fall.

A third worry is that people should buy now because a new Labour government might scrap PEPs. A change in government might seem likely, but the Labour Party has said it wants to encourage saving and has no plans to get rid of PEPs. And if it did, they might well be replaced by another tax-free savings vehicle.

If you have pounds 6,000 or more of spare money every year that you want to put aside, then you should probably go ahead and buy a PEP anyway. Likewise, those who save monthly, or those who are investing for the very long term, have less to fear from buying their PEP now.

But if, instead, you are someone who has accumulated just a few spare thousand, do not feel you have to lob it all into a PEP before this tax year ends. The general election is expected to be on 1 May, so at worst PEPs will still be around for at least one month of the new tax year.

And the longer you wait, and the closer we get to the election, the better the chance that you will get an opportunity to buy your PEP after a stock market fall.

q For the a free copy of the 'Independent on Sunday Guide to PEPs', telephone 0500 125 888, quoting reference 259/1.