Posted on April 20th, 2015 | Categories - SIPPs
One of the UK’s largest SIPP (Self-Invested Personal Pension) providers has tweaked the rates they pay on cash held by pension savers.
Hargreaves Lansdown has recently announced a change in the trusteeship of their SIPP, from Hargreaves Landsown Pension Trustees to Hargreaves Lansdown Asset Management, which has resulted in an increase to the interest rates they pay.
But how do the new rates shape up? Are they more attractive than you can find elsewhere? Read on and we reveal the answers.
Why hold cash in a SIPP?
Although interest rates are still low, there are a number of reasons why an individual with a SIPP may decide to hold cash, for example:
- As a short term place to hold funds until they are used to make an investment or purchase a commercial property
- Because the interest rate they are receiving is sufficient for their needs
- As a ‘safe-haven’ to protect their pension pot from market fluctuations before an Annuity is purchased
- Because they have a low attitude to investment risk and are prepared to accept the inflation risk which often comes with holding cash
How have Hargreaves Lansdown’s SIPP interest rates changed?
The interest payable on a Hargreaves Lansdown SIPP is tiered, with the higher rates reserves for larger balances.
The new rates will be available from 20th April and are as follows:
Old interest rates % New interest rates %
£50,000 and above: 0.10% £100,000 and above: 0.20%
£7,000 to £49,999: 0.05% £25,000 to £99,999: 0.10%
£1,000 to £6,999: 0.05% £5,000 to £24,999: 0.05%
£0 to £999: 0.05% £0 to £4,999: 0.05%
Are there alternatives with more attractive interest rates?
In a word, yes, but you have to be careful and watch out for additional fees.
SIPP investors who plan to hold cash essentially have two options:
- Use the cash account offered by their SIPP provider
- Select from the range of additional SIPP deposits accounts available
However, many SIPP providers, including Hargreaves Lansdown do not allow unrestricted access to deposit accounts.
This leaves SIPP cash savers to consider alternative SIPP providers, in which case it isn’t simply a case of comparing two interest rates; charges have to be factored in too.
If you are holding Cash Hargreaves Lansdown makes no charge for their SIPP, which is attractive, even if the interest rate you receive isn’t.
By way of comparison, Liberty SIPP pays a full 1% on all Cash held in their SIPP deposit account, which is provided by Metro Bank and also offers full access to all ‘SIPPable’ deposit accounts.
If you are prepared to tie up your capital, for say three years, it is possible to get an interest rate of 2.50%; well above both the mandated account offered by Liberty SIPP and the interest rates paid by Hargreaves Lansdown.
However, there are charges to pay to Liberty including £50 to transfer in an existing pension, plus £25 per year for each deposit account held.
Of course there are many other SIPP providers available and it wouldn’t be feasible to consider them all in an article such as this.
So what does this tell us?
- For Hargreaves Lansdown SIPP investors it is possible to find a better return on Cash; although additional charges must be taken into account
- Given the relatively low charges associated with setting up and running a SIPP the breakeven point, where the higher interest rate outweigh the charges, should be relatively low. Although you should of course calculate this for yourself before you decide which option to take
- The longer you tie up your capital the better the interest rate will usually be
Finally, you need to carefully consider your options before moving to an alternative SIPP provider and calculate that the interest rates won’t be wiped out by higher charges.
We’re here to help
If you are a SIPP Cash saver and would like help to find the most appropriate SIPP and best paying deposit accounts we are here to help.
Call Bev or Sarah today on 0115 933 8433 or email firstname.lastname@example.org