Investors poured record pounds 649m into PEPs to beat the Budget

The flood pouring into PEPs reached a record pounds 649m in net sales in June as investors acted to forestall any hostile measures in Labour's first Budget, according to the Association of Unit Trusts and Investment Funds (Autif).

Investors also pumped in cash from the sale of building society windfall shares, as UK and international equity markets continued to rise.

The inflow into PEPs and unit trusts came despite uncertainty over the Government's long-term position concerning PEPs and the tax-free benefits they offer savers.

Gordon Brown, Chancellor of the Exchequer, announced in the Budget earlier this month that the Government was planning to introduce a new Individual Savings Account (ISA) from April 1999, leaving some financial advisers to suggest that PEPs may no longer be worth investing in.

Philip Warland, director general at Autif, said: "It has been a very good month for unit trust sales. The windfall experience is clearly creating a new generation of equity investors.

"Although windfalls have led to large flows into building societies it is clear many people have understood that for the long term you cannot afford to keep all your money in cash.

"It should be a good grounding for the new Independent Savings Accounts which, as the Government confirmed, will offer terms as attractive as the current PEPs."

The net sales of PEPs in June brings total sales for the second quarter of the year to pounds 3bn, well above any previous three-month period in the past decade. The most popular type of unit trust fund were UK growth PEPs, which attracted some 24 per cent of the net inflow.

However, private investors withdrew pounds 11m from UK smaller companies funds, the first net outflow from this sector for seven months.

PEP-Direct, the UK's largest flat-fee PEP broker, said yesterday that among the most popular funds were those managed by Jupiter, Perpetual, Fidelity, Schroder and Johnson Fry.

Don Clark, managing director at PEP-Direct, said: "We have had a hectic June. It was also noticeable that there was a last-minute rush to beat the Budget."

The increase in funds pouring into unit trusts and PEPs came as Halifax and Abbey National, two former building societies, announced they are to raise the rates for savers.

Abbey National said it would be raising its rates by up to 0.25 percentage points in the wake of July's base rate increase. Ambrose McGinn, the bank's director of retail savings, said: "This is the sixth time this year that Abbey National savers have benefited. With interest rates rising, savers have much to cheer about."

Abbey's increase, which takes effect on Friday, raises the amount paid on its Investor 90-day notice account from 5.65 per cent gross to 5.9 per cent gross on deposits between pounds 10,000 and pounds 25,000.

Halifax said its rates would go up by up to 0.4 of a percentage point from Monday, the fourth increase in a year. The biggest increase will be for Halifax's Tessa2, which now pays an annual rate of 6.75 per cent gross, up from 6.35 per cent gross.