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Topics: group sipp| Investec Private Bank
Returns on cash deposited by SIPP and SSAS investors are far too low, according to a survey of 100 pension IFAs.
The research suggests 14% of SIPP and 12% of SSAS investors only receive the Bank of England base rate or less on their cash deposits.
Over a quarter of advisers estimate their SIPP investors receive 1% or less interest on their cash deposits and 59% receive a return of 2.5% or less, research by Investec suggests.
In addition, 31% of these IFAs estimate their SSAS investors collect 1% or less in interest and 55% estimate their clients earn 2.5% or less on their cash deposits.
Many savers are not achieving the best returns on their pension cash, a situation set to increase as more investors turn to these pension vehicles, Investec warns.
Lionel Ross, pensions & trust specialist, Investec Private Bank says: "Only 39% of pension IFAs we surveyed believe the rate of return on the cash element of a SIPP is acceptable with 37% saying the same for SSAS rates.
"We would urge investors, particularly those with cash balances of £100,000 or more, to check the rate of return they are receiving on their cash and to move it to an account paying a competitive rate of interest."
It says 36% of pension specialist IFAs have witnessed an increase in SIPP business over the last 12 months and 3% have seen an increase in SSAS business over the same period.
Ross adds: "This research demonstrates investors are turning to SIPPs and SSASs as a way to take greater control of their pension investments. However, despite having around a fifth of their pension assets in cash, many investors are receiving derisory returns on these deposits."
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Moving cash deposits in SIPPs
I agree with Greg. But you need to be careful about your choice of SIPP. For example, our SIPP, the Sippchoice Bespoke SIPP, does allow the member/adviser to move SIPP cash to any deposit account that they wish and does not require any cash balances to stay in the default bank account. However, many SIPPs do not include this flexibility since a significant part of their income comes from the difference between the interest they earn on their cash balances and the lower rate that they credit to their members' accounts.
Posted by: Hyman Wolanski
Which Banks do SIPPs
Is there a conspiracy to stop people investing Pensions in bank accounts? If you want to put your Pension pot in Banks Deposit accounts it is very difficult to find ones which offer it. Where is there a list published of the Banks which do and the rate of interest they offer? Those with several £100k need several bank accounts (50k in each) and the Trustees will charge a fee p.a. for each one. Any one any ideas?
Posted by: David Armitage
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Not the full story - what is 'cash'?
I don't feel that the full picture is being revealed in this article. One of the reasons an IFA will recommend a SIPP is the flexibility of choice and options within it. Most SIPPs come with a bank account, which is used to receive transfers in of funds, contributions, and to pay benefits out, purchase investments etc. This is a working bank account in every sense of the word. With good management, an IFA will probably seek to keep the balance in this account to a minimum, as the rates in today's low interest rate regime are also low. If cash is being used as part of the investment strategy though, there is no need to necessarily just leave the money in the SIPP bank account - many providers offer the flexibility to transfer to other accounts on varying terms, from instant access to term deposits. Certainly, fixed rate deposits out there are offering superior rates to SIPP bank accounts, but like any other investment, the IFA would need to invest in them on behalf of their client. Before stating that simply cash returns are unacceptable, perhaps all the options need to be explored first, including what is deemed to be an acceptable rate when faced with BOE rates of 0.5%.
Posted by: Greg Kingston