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03/12/2007 - Advisors unhappy with Sipp returns

Advisors unhappy with Sipp returns

26/11/2007 Adver

Over a third of pension advisors are unhappy with the rate of return being generated for their clients through self-invested personal pensions (Sipps) and small self-administered schemes (SSAS), new research from Investec Private Bank shows.

Sipps have become increasingly popular since April 2006 when new government legislation effectively widened the range of investments that could be held within them.

They are tax-efficient wrappers that can hold a range of investments, including stocks and shares, investment trusts, unit trusts, gilts, commercial property and land.

They are especially popular among wealthier pension savers who want to take control of their own investments as they allow holders to effectively build their own DIY pension.

They can either take control over their own investment strategy or they can appoint a fund manager or stockbroker to manage the investments for them.

SSAS funds are similar but are occupational pension schemes so, unlike most Sipps, are trust based. Like Sipps they offer greater investment control although membership is usually restricted to company directors.

But despite the growing attractiveness of these two types of pension funds Investec Private Bank found that 36 per cent of advisors and administrators believe they are not getting the best returns possible for their clients' on cash balances held in Sipps and SSAS accounts.

A previous report from Investec published in 2005 and reported in the Scotsman revealed that the average rate of interest paid on cash balances held in Sipps and SSAS funds at the time was just 3.4 per cent and that many did not even keep up with inflation.

While interest rates on Sipps and SSAS accounts appear to be higher today the new research suggests advisors are still not pleased with the returns being generated.

One-third said their clients were earning a rate of interest below six per cent on the money deposited into these funds even though there are better rates available. A further 32 per cent were unaware of the interest received on their clients' cash balances.

Administration was named as one of the primary factors preventing advisors from switching their clients' existing Sipp or SSAS account to one which pays a higher rate of interest.

Indeed, 38 per cent said the administrative burden of moving cash from one account to another was the main reason they had not changed to an alternative one.

Linda McBain, head of banking at Investec Private Bank, said: "A high proportion of pension fund cash is languishing in accounts offering relatively poor rates of return.

"Following a succession of base rate changes over the last year or so, there are now a number of deposit accounts paying significantly more than six per cent.

"However, while it's crucial to check the headline rate, those depositing cash must ensure that the account is transparent in terms of fees and that it pays a consistently competitive rate," she added.

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