Pensions  

Up to 40% of Sipp revenues are withheld account interest

Self-invested pension firms are likely to continue to obfuscate the amount of interest retained from cash accounts despite new disclosure rules, with research showing providers are dependant on such income and generate as much as 40 per cent of their revenues from withheld interest.

John Moret, principal of consultancy business MoretoSipps known widely as ‘Mr Sipp’, said data produced by the firm shows six firms produce more than 10 per cent of their revenue from withheld interest on client cash accounts, with the figure at one firm standing at 40 per cent.

Mr Moret would not disclose the names of the firms, though he stated that the company generating the largest revenue from the practice was one of the top 10 in the sector by size.

He added that he was not against generating revenue in this way if it was properly disclosed to clients and if customers were still getting an interest rate above what they can get at a high street bank.

However, research from FTAdviser sister title Money Management reveals that the majority of providers are offering sub-high street rates on their client cash accounts.

According to a special report published in the latest edition of the magazine, a survey of more than 70 Sipps revealed 55 pay an interest rate that is less than the current record low 0.5 per cent bank base rate, with around 25 paying zero per cent. A handful more providers pay the base rate of 0.5 per cent.

Among those paying zero per cent are major industry brand names such as LV=, Scottish Life, AJ Bell and Alliance Trust.

Of the few Sipps paying a rate above the base rate are Liberty Sipp (0.75 per cent), NSS Trustees (0.8 per cent), Redswan Pensions (0.85-1.1 per cent) and Nucleus (0.75 per cent).

Cash accounts, necessary for all Sipps, are used for a number of reasons, but exist specifically to hold cash, receive income from any investments and also to pay fees, such as to advisers.

Mr Moret said: “Where I do have an issue is where a client receives a rate of interest on their Sipp cash which is lower than they could obtain if they went to the bank direct.

“What is retained needs to be disclosed in a meaningful way so investors know what is going on and if investors are getting a rate of interest with cash at a higher level than bank rate [0.5 per cent] they are not being disadvantaged.”

Mr Moret said the new disclosure requirements for Sipp operators, which came into force on 6 April 2013, could affect this. However, he says a lack of clarity from the regulator on what must be disclosed could allow providers to continue to obfuscate retained interest.

Mr Moret said: “The [FCA] hasn’t been duly prescriptive and some providers will come up with disingenuous ways of disclosing it.

“I believe the current disclosure rules are somewhat vague and don’t require providers to disclose the actual impact on an investors cash nor the amounts retained. It is a small step in the right direction.