Over the weekend a raft of new disclosure rules were brought into effect for self-invested personal pension (Sipp) providers, all of which are aimed at creating increased transparency around the total cost of pensions for the end user.
These rules will have an immediate impact on a particular bugbear of mine: the lack of transparency in relation to Sipp current account commissions.
For a number of years I have been opposed to the way some Sipp providers have not been sufficiently transparent about how they take a percentage (or indeed all) of the interest paid on the Sipp bank accounts held by their clients.
These accounts, necessary for all Sipps, are used for a number of reasons, but exist specifically to hold cash, receive income from any investments and also to make external payments.
The bottom line is this: some providers skim off the interest on these accounts for no other reason than the fact that they can (and because, until now, they have not been required to disclose how much interest they receive from the accounts).
In my mind, this isn’t even faintly TCF, and yet it’s been going on for some time.
It’s still early days but there are murmurings in the industry that some Sipp providers will increase their fees in order to maintain the income they make from current account commissions.
Given that a significant percentage of some providers’ profits is generated by the interest they take from these accounts, it will be very interesting indeed to see how this pans out in the weeks and months ahead.
With increased capital adequacy rules already applying additional pressure on Sipp providers, the new disclosure rules on current account commissions may well be another contributor to the expected consolidation in the industry in the months and years ahead.
For a number of years now, certain Sipp providers have had their cake and eaten it. But from now on the Sipp account holder – quite rightly – will be in the driving seat.
The new disclosure rules are, without doubt, a victory for the consumer.
John Fox is managing director at Liberty Sipp
Keep up to date with the latest movements in Sipps with the Money Management Sipps Special Report.
