Majority of SIPP providers are paying less than Bank of England (BoE) base rate of 0.5% in SIPP cash accounts, a latest survey by MMSIPP revealed. Of the 61 providers that disclosed their rates in the survey, 48 said they pay less than the BoE rate of 0.5%, while another three pay just the base rate.
The remaining 10 providers pay just 0.99% in SIPP cash accounts, below most high street bank rates. The highest rate of 2% offered by Prosper SIPP, is way below the top current account rate of 4.89% offered by Santander.
Most SIPP providers are taking a margin on the interest paid in the current accounts, which explains the low rates of interest. The SIPP providers are using the same bank’s accounts for SIPP cash accounts, but are offering different rates. Attivo Financial Services, the second highest provider in the survey, pays 1.75 per cent using a Royal Bank of Scotland account. Surprisingly, Zurich, Scottish Life, Aegon and AXA all use RBS accounts, but offer 0% on their SIPP accounts.
The savings account rates have been fairly low due to historic low levels offered by BoE, though some banks offer fairly competitive rates. However, most SIPP members are held hostage by their providers since members don’t have the option of shopping around.
15 of the providers among the 63 surveyed do not allow member’s investing in other accounts. Many among the remaining allow members to invest, albeit for a charge and will wipe out most of the gains, if not all.
15 per cent of the providers guarantee a minimum rate, and the guaranteed minimum rate is lower than 0.3%. The lowest guaranteed rate of 0.0001% is offered by provider James Hay with its iSIPP product.
The FSA consultation paper CP 11/03 had proposed SIPP providers declare their margin over bank accounts. The consultation, published in February 2011 said: “There should be clear disclosure of the fact that interest is retained and the amount, which is not always the case at the moment.”
Provider Attivo offers 1.75% interest on its MYSIPP product charging £495 annually. It however, charges a lower annual fee of £250 on SIPP account, but pays no interest, meaning anyone with less than £14,000 in cash account will be better off with the zero interest lower annual fee option.
John Richards, SIPP administrator at Attivo said the provider takes 0.25% margin on interest offered by the bank, while there’s no margin for its MYSIPP product.