Pensions  

Sipp providers reap interest turn

Sipp providers reap interest turn

A wide variance exists in the amount of interest payments Self-invested personal pension (Sipp) providers take from investors’ cash holdings, swinging from nil to 1 per cent.

Known as ‘interest turn’, it is the money Sipp providers earn from interest paid by banks on customers’ cash holdings within the Sipp.

Abraham Okusanya, principal at research firm FinalytiQ, said such interest earned by providers on deposits was a cost to clients, and providers should disclose it in pounds and pence.

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Mr Okusanya said: “There are instances where providers are earning as much as 85 per cent of the interest, and leaving clients with the remainder. I don’t believe that this is treating customers fairly at all.”

In August this year, it was revealed almost a quarter of advisers wanted an outright ban on Sipp providers earning money from retained interest charges in projections and reduction in yield calculations.

Xafinity said it had always openly disclosed that it took interest turn, and could take up to 1 per cent, claiming in reality it took much less than this.

Hargreaves Lansdown took 0.53 per cent to the end of June 2015, according to the latest figures available.

London & Colonial takes 0.5 per cent on top of the Bank of England base rate.

Liberty Sipp receives 0.5 per cent, AJ Bell takes between 0.25 per cent below and 0.6 per cent, while Dentons takes an interest turn of 0.03 per cent on balances below £100,000.

John Moret, founder of consultancy MoretoSipps, said, historically, Sipp providers have taken 2 or 3 per cent in interest turn, and such income was the difference between profit and loss.

Mr Moret called for providers to be forced to declare the level of interest that they withhold expressed as the equivalent additional annual per member charge.

Colin Rodger, director at Glasgow and Edinburgh-based Alexander Sloan Financial Planning, said: “It is an issue of trust between the client, the provider and the adviser in the middle, and as a practice, they should not be doing it – at the very least they should be disclosing what they are doing.”

Aviva, Curtis Banks, MW Pensions, Morgan Lloyd, Momentum Pensions, Nucleus and Barnett Waddingham told Financial Adviser they did not take any interest turn.

Meanwhile, Mattioli Woods, Suffolk Life and James Hay Partnership all declined to comment.

ruth.gillbe@ft.com