Current accounts are necessary for all Sipps and are used to hold cash, receive income from any investments and also to make external payments.
Mr Kingston said: “Many providers, particularly the smaller ones, have relied on this as a cheap source of finance but, as interest rates dropped, the returns did too.
“Now with the FLS being extended, this is causing further erosion on capital in bank accounts. Sipp providers cannot put clients’ money at risk, and they cannot profit from it by such methods as stock lending, so holding money in a cash account had seemed a safe source of revenue.”
His comments came after a warning from Liberty Sipp that the interest taken by some Sipp providers can make up a sizeable proportion of their revenues – by some estimates as much as 40 per cent – but clients are paying charges for the cash management.
John Fox, managing director for the Liberty Sipp, said: “Investors believe their provider may not have been fully transparent with them in relation to current account fees.
“In fact, I would be astonished if more than a tiny percentage of clients knew that they were paying these fees at all.
“Thankfully, from now on the FSA’s new disclosure rules should make it far clearer to consumers. Sipp investors have an absolute right to know whether or not their provider is taking a cut, or all, of the interest paid on their current accounts. Transparency is key.”
Phillip Bray, of Sipp specialist Investment Sense, added: “Forcing Sipp providers to disclose clearly the amount of interest they are retaining from the member’s Sipp bank account is positive.
“I’d like to see Sipp providers take no interest whatsoever. After all, the interest rightfully belongs to the member. However, any move to ban the practice could lead to higher Sipp fees, which would penalise members.”