Despite low interest rates showing no sign of increasing, holding deposit accounts in a SIPP (Self-Invested Personal Pension) is still a popular option for any people.
The fact inflation remains low, stock markets are still relatively volatile and Pension Freedom mean more people are taking money out of their pension, often in tranches to stay out of higher rate tax, are all contributory factors to the on-going popularity of this option.
However, mainly due to changes to relatively obscure rules, relating to the amount of capital SIPP providers must hold, the landscape is changing.
So, whether you are thinking of opening a SIPP, or already use such a scheme, here are three questions you should ask your provider if you plan to hold deposit accounts
1. “Will you put up my SIPP fees?”
Many SIPP providers will soon need to hold significantly more capital in their reserves.
Let us explain why:
The FCA (Financial Conduct Authority) is nervous that some SIPP providers hold too little capital to prevent their business running into financial difficulty. It has therefore recalculated and in many cases increased, the amount of capital SIPP providers must hold. In doing this it has split investments which can be held in SIPPs into two categories; ‘standard’ and ‘non-standard’. The complex capital adequacy calculation means that SIPP providers who hold more ‘non-standard’ assets will have to hold more capital.
Certain types of fixed term deposit accounts have been classified as ‘non-standard’, meaning that SIPP providers who continue to allow these will be hit by a higher capital adequacy requirement.
For some, who are already well capitalised, this isn’t a problem, for others things might not be so straightforward.
Still with us?
You may ask how this will affect you. The answer is it may not, however, one of the options SIPP providers have to meet the new requirements is to push up the fees you pay.
We would recommend you seek a conversation with your SIPP provider, to understand how they intend to meet the new capital adequacy requirements and whether or not they plan to push up fees in the near future.
2. “Will you restrict the types of accounts I can open?
One option, is for SIPP providers to limit the deposit accounts they will allow in their SIPP, to those which fall into the ‘standard’ category.
In practice this means they will not allow fixed term deposits, which can’t be broken by the saver before the end of the term.
Whilst it may come as a surprise that some fixed term deposits can be accessed before maturity, usually with a penalty attached, many accounts can’t.
Therefore, we would recommend asking your SIPP provider whether or not they plan to limit the type of account they will allow you to hold in your SIPP.
3. “Will you restrict the banks and building societies I can use?”
Whilst not strictly related to the changes being introduced by the FCA, we have heard of certain SIPP providers limiting the banks ad building societies they will allow their SIPP clients to use.
In an already limited market, further restrictions will not be welcomed by SIPP investors, especially if they include many of the newer banks, who often pay the highest rate of interest.
Again, we would recommend you speak to your SIPP provider to see if they have already, or indeed have any future plans, to limit the banks or building societies you can open a deposit account with in your SIPP.
We are here to help
If you are worried that your SIPP fees could rise in the future, or your deposit account options become more limited, we are here to help you.
Call Sarah or Bev on 0115 933 8433 or email info@investmentsense.co.uk we will be happy to help.
