Dentons Pensions Management’s director of technical services has defended self-invested personal pension providers’ stance on the ‘interest turn’ they take from cash accounts.
Yesterday, it was revealed 23 per cent of advisers want an outright ban on Sipp providers earning money from retained interest charges in projections and reduction in yield calculations, which is known as the ‘interest turn’ from Sipp cash accounts.
This number has almost doubled in the last six months, according to research by Momentum Pensions.
However, Martin Tilley told FTAdviser the interest rate trail may well have been a substantial source of income for some Sipp providers, but the reduction in interest rates and tightening of bank deals has diminished this considerably in recent years.
“The Financial Conduct Authority has also made it clear that interest rate trail should be disclosed so this is no longer an undisclosed cost, to suggest that this is not taking place is behind the times,” he stated.
“In responses to the FCA’s consultation on disclosure, it has been set out that a charge or cost only exists where an interest rate trail results in the rate of interest passed on the client being less than that available to the client on standard product terms.”
For example, if a default bank account would pay as standard to a Sipp client directly 0.2 per cent per annum and the provider manages to negotiate 0.4 per cent for its own clients and does not take more than the 0.2 per cent enhancement as a trail, Mr Tilley said the client is no worse off and no cost has been incurred.
“The client could not have obtained the higher rate on their own,” he pointed out.
“If the provider then uses this trail as part of its business model, then this could actually be to the clients advantage, as if they were to pass the whole enhanced rate on to the client and instead make an equivalent charge, it would have to add VAT on to the fee, which would disadvantage the client by 20 per cent of the amount in question.”
Mr Tilley accepted the interest rate trail debate will have its champions on both sides, but argued if the trail is properly disclosed and not disadvantaging the client beyond the standard terms they could have obtained directly, “the act is not as dirty as it is made out to be”.
ruth.gillbe@ft.com
