Personal Equity Plan (PEP)

What Was a Personal Equity Plan (PEP)?

A personal equity plan (PEP) was an investment plan introduced in the United Kingdom that encouraged people over the age of 18 to invest in British companies. Participants could invest in shares, authorized unit trusts, or investment trusts and receive both income and capital gains free of tax.

PEPs were replaced with Individual Savings Accounts (ISA) in 1999.

Understanding a Personal Equity Plan (PEP)

The PEP was designed to encourage investment by individuals. Many plans required a minimum amount to be invested, such as £250 or £1,000, depending on the type of plan and the plan manager’s requirements. Among the incentives presented to the public to encourage their participation in a PEP was the prospect of income and capital growth at a greater rate than certain other investment vehicles, such as if they established a deposit account with a building society.

The income from a PEP was tax-free, so long as the invested funds remained in the plan. As with other types of equity investments, the value of the shares invested in through a PEP could rise or decline with market fluctuations.

It was believed that to see the best return on investment from a PEP, the funds should have remained in place for upwards of five years, if not ten years. Due to certain management fees and other charges that may have been applied, withdrawing funds early could have negated the gains they accrued.

PEP investments had to be made through an authorized plan manager, who was responsible for all of the plan's administration.

In 1999, the PEP was discontinued in favor of ISAs, another tax-efficient wrapper that offered greater variety, including the option to park capital in a tax-free cash savings account. As PEPS were phased out, all remaining plans were converted by 2008 into ISAs.

Limits and Regulations on Personal Equity Plans (PEPs)

There was an annual contribution limit of £6,000 for general, self-select PEPs. Single-company PEPs, meanwhile, had a limit of £3,000 pounds in annual contributions. Under a single-company PEP, only one company could be invested in per tax year. With general self-select plans, individuals had a variety of options for their investments such as shares, open-ended investment companies, corporate bonds, and investment trusts.

The investments made under self-select plans were directed by the individual, though a manager or firm was still needed to facilitate the plan, making the plan owner responsible for deciding where their funds should be applied. Managed PEPs, on the other hand, were overseen by a professional manager who put together investment portfolios for the funds. Such ready-made plans allowed individuals without market expertise to invest through PEPs.