Further, Table 6 looks more in depth at each plan's details including minimum charges, service accreditation and classification of each plan.
No interest
A major decision made over the summer was the Bank of England opting to cut the base rate of interest to 0.25 per cent – a move that will further lessen the attractiveness of cash holdings. Table C highlights the cash account rates available, including potential charges.
Some of the figures detailed are likely to reduce further over the coming weeks and months as the BoE’s decision begins to make itself felt. Even now, the best cash rate available is a measly 0.6 per cent, and to obtain this is likely to require substantial investment.
Mr Tilley explains that despite Sipp bank accounts paying little or no interest, some firms retained an ongoing trail interest, which can be a key component of operating profit. He says that although the base rate reduction was largely passed on by the banks, “this may have impacted business models that cannot rely on interest share as a reliable continuing income”.
Mr Tilley adds that providers should have amended business models to take stock of this, but adds that some will be “hit hard by the latest base rate reduction”.
In any case, investors considering a Sipp as their retirement vehicle should have few concerns about this situation. Generally, the purpose of a Sipp is to generate a suitable and flexible retirement income, with the best strategy investing in long-term assets that aim to produce capital growth or high yields. Therefore, the performance of equity markets is of far greater importance.
Interestingly, the base rate reduction could benefit Sipp providers, as annuity rates that were already at historic lows take a further plunge as a result of falling gilt yields.
Given that annuities are also decidedly inflexible, many investors looking to secure income may become more hesitant and prefer a more flexible approach, so may hold off securing a guaranteed income as part of a short-term retirement strategy.
Brian Davidson, senior pension proposition manager at Alliance Trust Savings, believes the disadvantage of low guaranteed income will outweigh the benefits in many cases.
Mr Davidson says, “Advisers will need to consider drawdown as the main means of providing a retirement income for more clients. In the wake of pension freedoms, this puts further pressure on advisers to ensure their clients give serious thought to their likely income needs throughout different stages of retirement and how long they are likely to live.”
Keeping up
Technology plays a key role in almost every human activity and the Sipp industry is no exception. With consumers showing desire to handle and manage financial affairs digitally, providers will need to keep pace to meet this growing demand.
