Despite a requirement for SIPP operators to treat customers fairly, many SIPP holders are blissfully unaware their SIPP operator could still be keeping all of the interest earned on their SIPP money
Missing Interest Could Be Costing SIPP Holders A Fortune
SIPP Operators Have Been Retaining Interest For Years
A good number SIPP operators have been helping themselves to some or even all of the interest earned on their clients’ SIPP Bank Accounts and other deposits. We wrote about this way back in 2013.
At the start of 2013, the Financial Conduct Authority introduced the Retail Distribution Review. It was a set of rules aimed at introducing more transparency and fairness into the investment industry. Regulated firms now quote you specifically what it costs for them to provide you with their services. This includes SIPP operators, except perhaps when it comes to earning interest on your cash.
Even at low interest rates, there’s a lot of money at stake. According to Money Marketing, the FCA estimates SIPP operators collect around £60 million a year from interest earned on their clients’ cash.
However, it’s all about to change. In April 2017, SIPP operators will be required to show the interest margin they make on your cash holdings when they issue you with an illustration.
In a positive move ahead of this date, a number of SIPP operators have revealed what interest they earn and what interest they pass on. Incredibly, some of the biggest firms in the SIPP business still keep all of the interest earned on your money and pass on none of it!
Check out this article to see whether your SIPP operator keeps back some of your interest?
Why It’s OK For A SIPP Operator To Retain Interest
A SIPP operator is in business to make a profit. If it doesn’t, it’ll go out of business and the administration of your SIPP could well suffer as a consequence. You wouldn’t want that, but it does happen as three SIPP operators this year alone have been taken over following difficulties.
As a result, it’s perfectly fair and reasonable that your SIPP operator should charge for the work it does for you. But isn’t fair is when its total income is made up from some explicit charges, such as fees quoted on a menu, and some hidden extras in the form of interest retained on your deposits and administration charges hidden within your fund prices.
Here’s the point. It doesn’t matter how your SIPP operator collects the money it needs to adequately pay for the services it delivers to you, as long as it tells you in detail from where the money arises. That way, you can decide whether the total price you’re paying for your SIPP administration is acceptable to you.
Normally Speaking, A Full SIPP Does Not Retain Interest
Many SIPPclub Members have taken advantage of a full SIPP. The SIPP operator only earns its income from the charges specifically quoted on the Schedule of Fees that’s signed as part of the application process. In most cases, the fee is fixed no matter how much you diversify your money across different asset classes. It doesn’t retain any interest from money held in your SIPP Bank Account or any interest from money you place on deposit. And it doesn’t hide any charges within fund prices.
Does Your SIPP Operator Keep Some Or All Of Your Interest?
If you’re not completely sure whether your SIPP operator has revealed all the sources of income it collects from administering your SIPP, which might include retaining interest on your SIPP Bank Account and other deposits, you should ask them.
Your SIPP operator has a duty to disclose this to you. And this doesn’t mean pointing you to a Terms And Conditions document that’s many pages long, written in a font so small you’d require a microscope to decipher the contents, with you needing a Masters Degree in Mathematics to understand it!
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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