Poorly paying Sipps costing £579m

Poorly paying self-invested personal pensions (Sipps) cash accounts could be costing investors over £579 million a year.

Research by Sipp provider, James Hay, shows recent market volatility has led to a greater use of cash in Sipp portfolios, with 15 per cent now on average held in cash.

However, interest rates on Sipp cash accounts now range from 2.7 per cent to up to 6.9 per cent.

With an average Sipp cash balance of £46,500 - 15 per cent of the average £310,000 holding - investors could be missing out on around £1,930 per year between the lowest rates and highest rates on the market.

Chris Smeaton, at James Hay, said: “Cash rates are now becoming a key focus in Sipps as investors increasingly asset allocate to the safer havens of cash.

“In a lower return environment, these differences in cash rates are quite substantial… Investors need to consider cash rates when they chose a Sipp."

Francis Moore, managing director of European Pensions Management (EPM), urges Sipp investors not to rely too heavily on cash.

"Sipp members might look to stay out of the market for periods but they would be nervous about keeping money locked up in case there is the opportunity to invest when stocks are cheaper," he said.

"At what level the market may bottom is not clear nor is the timing clear so flexibility is important."

Mr Moore also urged investors to be more circumspect when choosing cash accounts.

"High-rate fixed-term deposits have their place but it is a bit disingenuous to say all SIPPs are 'losing' by not being in a particular deposit facility. SIPPs are very diverse in their requirements and cash management is not all about headline rates and fixed terms," he concluded.