Self-invested personal pension provider James Hay revealed results today (28 August) that suggest the tide is turning on attrition within its Sipp book, but that profits fell year on year as a result of ongoing investment initiatives and reduced income from withheld interest on client cash.
While Sipp sales were up in the first half of 2014 compared to the same period a year ago and net growth in the book surged 70 per cent, suggesting a fall in transfers out, results published by Irish parent IFG Group showed a drop in adjusted operating profit from £3.4m to £2.5m.
The results stated that revenue from new business was “partially offset by the effect of attrition and a challenging interest rate environment as interest earned from banks on client deposits has been impacted by lower rates”.
Back in January FTAdviser revealed James Hay offered the lowest cash account interest rate from a range of 12 platform providers, with the firm paying a nominal interest rate of 0.00001 per cent.
A spokesperson added at the time that this rate “will never fall below zero” and that the amount retained has enabled it “to launch some of the lowest cost Sipp products on the market today”.
“Due to our size and the total value of deposits we hold with the banks we use in our products, we are able to negotiate a payment from them.
“This varies between £8 and £12 for each £1,000 held with the banks... [and] helps us to pay for the banking facilities we offer and allows us to reduce the charges across our products.”
Last year, FTAdviser exposed the scale of profits made by some Sipps firms from cash account interest, with data compiled by John Moret, principal of consultancy MoretoSipps, showing six firms produce more than 10 per cent of their revenue in this way.
The figure at one firm, which Mr Moret would not name, but said was one of the top 10 in the sector by size, stood at around 40 per cent. He added that he was not against generating revenue in this way if it was properly disclosed to clients.
James Hay said the drop in interest income was not the primary reason for the profit decline, with its results stating that this was rather driven by “significant investment in the business, which has underpinned the positive impact on sales of new products”.
Sipp sales in the first six months of the year were up 15 per cent to 2,998, compared with 2,600 for the start of 2013. On an equivalent basis, sales were 2,826 compared to 2,064, an increase of 37 per cent, with the modular MiPlan driving growth.
Bosses were positive about prospects for the business this year, with the first clients from James Hay’s arrangement with Capita expected to begin transferring in the third quarter of 2014 and continuing into 2015.
According to management, impending retirement income changes announced in the UK budget led to increased demand from clients with larger pension funds looking at investment options, as well as increased queries on drawdown options available.
Year to date average annual revenue per Sipp has reduced slightly due to the modular pricing of the MiPlan, lower interest income per Sipp and a marginal reduction in higher-fee components compared to 2013.
At the end of June 2014, James Hay Partnership administered 41,289 Sipps, up from 38,392, and served in excess of 49,000 individual clients.
