Pensions  

How much Sipp providers pocket from interest revealed

How much Sipp providers pocket from interest revealed

A wide variance exists in the amount of interest payments Self-invested personal pension 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 with the Sipp.

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

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.

“It is clear so far the industry is doing a terrible job at disclosing and the FCA may be forced to ban this altogether,” he said.

In August this year, it was revealed almost a quarter of advisers want an outright ban on Sipp providers earning money from retained interest charges in projections and reduction in yield calculations - the ‘interest turn’ from Sipp cash accounts.

However Dentons Pensions Management’s director of technical services Martin Tilley defended self-invested personal pension providers’ stance on the profit they take from cash accounts.

FTAdviser asked a number of Sipp providers what they currently take in terms of interest turn.

Aviva, Curtis Banks, MW Pensions, Morgan Lloyd, Momentum Pensions, Nucleus and Barnett Waddingham all responded to FTAdviser to say they do not take any interest turn.

Xafinity told FTAdviser it has always openly disclosed it takes an interest turn and can take up to 1 per cent, claiming in reality it takes 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, and the client receives the base rate, though Liberty will continue paying 0.5 per cent until October when it reduces to 0.25 per cent in line with the Bank of England base rate cut.

AJ Bell takes between 0.25 per cent below and 0.6 per cent above the prevailing base rate for cash held in Sipp, although it may be higher or lower when interest rates are volatile.

Dentons takes an interest turn of 0.03 per cent on balances below £100,000.

According to Sippchoice, the Bank of Scotland will pay comission on Sipp balances at a rate of 0.18 per cent a year. The rate of interest payable from April 2016 for clients was 0.02 per cent a year.

Mattioli Woods, Suffolk Life and James Hay Partnership all declined to respond to FTAdviser’s request for information on interest turn.

Mr Okusanya said the way some providers structure commercial arrangements on deposits unlevels the playing field and makes it impossible for advisers or clients to compare them.

“My preference would be that providers pass all of the interest earned on clients’ assets to clients. Providers don’t hang on to dividends on stocks owned by clients in their Sipp or the interest distribution on bonds, but so why interest on cash any different?