Are PEPs automatically converted to ISAs?

Hi,

My elderly father has 3 small investment accounts that were set up a number of years ago, two of which were originally PEPs and the other is an ISA. He can't remember why he necessarily set them up or who gave him the advice at the time, and so my first question is whether PEPs automatically became ISAs when PEPs were replaced or should some form of paperwork need to have been completed first please?

I appreciate you don't necessarily give financial advice, but would you recommend that rather than have 3 small stocks and shares accounts with 3 different companies and their respective charges, that it might be better to combine them into one with just the single management fee?

Many thanks.

Niall,

Personal Equity Plans (or PEPs) were indeed a precursor to ISAs. They were invented in 1987 (while I was in primary school!) by national treasure™ Nigella Lawson’s Dad. The then-Thatcher government was very keen to promote financial services in the UK; PEPs were part of it. The idea was to encourage mass share ownership; a very Thatcherite idea. In terms of achieving policy goals, the whole thing was pretty successful. When Labour came to power from 1997, they took PEPs and their cash equivalent Tax Exempt Special Savings Accounts (TESSAs), thought “Lots of letters there; lets simplify everything!”. So 8 letters became 3 – ISA.

It's worth bearing in mind that ISAs are like Tupperware. Investments are like the food you store in them. You can empty out your ISA and put something new in it. The contents can be exciting (cookies!) or disappointing (chicken giblets), but you can change them. The ISA keeps the taxman off your investments like Tupperware keeps microbes off your food.

Your Dad’s PEPs will have been converted automatically into Stock & Shares ISAs in 2008 – no intervention by him was needed at the time. In terms of questions to ask about a product that hasn’t been touched in a couple of decades, I’d suggest fees could be a big one. Generally, fees for product wrappers (like an ISA) have come down a lot in that time. The other thing to think about is diversification of the investment inside the ISA – PEPs could initially only invest in a single stock if it wasn’t put in a fund. If this was a fire-and-forget investment, it would be wise to review that now.

The overall question of whether it's worth consolidating it all depends on the circumstances. But considering there aren’t any generous guarantees likely to be baked into the old ISA (as there often are with old pension plans), it will almost certainly be worth transferring to a more modern provider. I would imagine you would save on fees and find something more appropriate for your father’s needs.