Latest figures from Revenue & Customs show that more than £79 billion is still invested in personal equity plans (Peps), which celebrate their 21st birthday in January. But they will not be around for much longer. In April Peps will be merged into Isas and the tax-exempt scheme introduced in the Nineties to encourage wider share ownership will cease to exist.

For investors still holding Peps, here is a guide to the changeover.

Why is it happening? The aim is to make savings simpler for investors to understand and more straightforward for providers to administer. Although Pep rules have been aligned with Isa rules since 2001, investment managers have still had to keep them separate for administration purposes. Now they will be able to put the money into one pot.

What does it mean for existing Pep investors? Most Pep investors will not notice any difference, apart from the disappearance of the name, but those with stockbroker self-select Peps and Isas may see a reduction in cost.

Peter Shipp, director of policy at the Tax Incentivised Savings Association, says: “At the moment, if investors hold shares in the same company in both their Pep and their Isa and want to sell them, this is likely to be treated as two separate deals, so they could be charged twice. From next April they will have only one account, so it would be one deal and they should be charged less.”

What do I need to do? Pep investors will not have to do anything. Their managers will be responsible for the changeover. If the manager has separate nominee accounts for Pep and Isa holdings, this could mean that holdings will be reregistered into the Isa nominee account. Therefore, it is probably a good idea to check your statements before and after next April to make sure nothing has gone astray.

Will I lose any tax breaks? The change from Peps to Isas will make no difference to the way your Pep investments are taxed. The tax treatment of Peps was brought into line with Isas when the latter were launched in 1999. Transferring your Pep money to a new investment manager will not affect your tax breaks either, provided that you do not cash in your investment first.

Simply ask the new managers for a transfer form and they will arrange it on your behalf. Better still, transfer all your Peps to a fund supermarket and you can then switch between funds whenever you like.

Is this a good time to review my portfolio? It is always advisable to review your investments regularly. Darius McDermott, of Chelsea Financial Services, points out: “If you have had the same investments in your Peps for the past ten or fifteen years, a lot could have happened in the meantime. The funds may have been good performers when you first invested but may have since fallen below par. Your investment objective or attitude to risk may have changed. Switching to better-performing funds that are more appropriate to your needs could give your old Peps a new lease of life.”

What has happened to Tessas? Tessas (tax-exempt special savings accounts), the tax-free deposit account introduced by the Conservatives, have already become cash Isas. Some banks and building societies still refer to Tessa-only Isas (Toisas) for marketing purposes, but they are now the same as any other cash Isas.

CASE STUDY

Bridget Quirk, a self-employed bookkeeper from Slough, started saving in Peps in 1996 and then Isas in 1999.

Among her original Pep holdings were Invesco Perpetual High Income and Gartmore European Select Opportunities. She has since dropped the Gartmore fund and says: “When my broker, Chelsea Financial Services, pointed out that the Gartmore fund was not performing well I transferred to Artemis European Growth, which has performed a lot better.”

She now holds her Peps and Isas on a fund supermarket and receives a joint statement for all her holdings.

The new Isa rules

From April 6 the annual Isa allowance will increase by £200 to £7,200. One reason for the new limit is that it is more suitable for regular savers as it can be divided to put aside up to £600 a month.

Mini-Isas are being abolished. In future, if you want to combine cash and shares there will no longer be such a rigid split on the amounts that you can invest in each.

A maximum of £3,600 can be saved in a cash Isa. If you do not want to invest that much, you can invest the remainder in a stocks-and-shares Isa with the same, or another, provider. So if you put, say, £2,000 into a cash Isa, you can invest the remaining £5,200 of your annual allowance in a stocks-and-shares Isa.

It will be possible to transfer some, or all, of the money saved in past years’ cash Isas into stocks-and-shares Isas, but not to transfer money back into cash Isas from stocks-and-shares Isas.

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