SIPP firms siphon off millions of investors’ cash
SIPP providers already have problems with new transparency of charges guidelines that were issued less than a week ago by two industry groups.
The Association of British Insurers and Association of Member Directed Pension Schemes have put together a joint ‘good practise’ guide for SIPPs providers that includes clearly laying out fund charges.
A SIPP is a self-invested pension plan - but the plan providers seem to be penalising investors who take out a SIPP to manage their own retirement funds.
This part of the guidelines has already exposed that many SIPP firms are forcing investors to put cash in to their own funds and penalising them if they prefer to use fund managers outside the scheme.
AEGON is channelling £416 million of SIPP investors’ cash every year in to the company’s own funds as a condition of holding an AEGON SIPP. The company has 138,600 SIPP plans contributing an average £3,000 a year to the insurance company’s coffers.
An AEGON spokesman said: “Regular premiums can only be paid into the insured element of our plan. The SIPPs market is made up largely of lump sum investments so that is what we currently support.”
Suffolk Life and Rowanmoor also penalise SIPP investors who choose unaffiliated investment managers. Suffolk Life charges up to £75 while Rowanmoor charges £50.
Suffolk Life marketing director John Moret says: “We have a data feed with a number of investment managers. Without this everything is paper-based which means extra cost and risk.”
John Moret has been outspoken in the press recently over the HMRC liquidation of Freedom SIPPs and the ability of small SIPP firms to manage their businesses.
Rowanmoor head of technical services Robert Graves says: “We charge £50 for investing with non-preferred investment partners to cover the additional work involved.”
LV= has banked at least £18m by requiring all SIPPs investors to have a minimum £3,000 invested with the firm. LV= has over 6,000 SiPPs and £100 a year if clients choose to use an investment manager other than its five affiliates.
LV= head of pensions Ray Chinn said: “Because we are an insurance company, there has to be a contract of insurance within our plans and the £3,000 forms that contract. We are not quite as free as true SIPPs providers but it allows us to be more flexible in other areas such as not charging VAT on our SIPPs fees.”
ABI acting director general Maggie Craig said: “With SiPPs becoming an increasingly important part of the pensions landscape, it is vital that advisers and consumers fully understand what these contracts do, who they are appropriate for and how much they cost.
“This guidance will help to ensure that the product is understood better by customers and advisers and that it is targeted at those for whom it is an appropriate long-term savings vehicle.”
