NEWSLETTER: SIPP cash rates, Unisex GAD rates, annuity rates worsen even more - and opportunities for IFAs!
Contributed by MW Pensions
14 September, 2012
Contributed by MW Pensions.[www.mwpensions.co.uk]
SIPP cash rates
We have regularly discussed cash rates offered by various SIPP Providers. We do not take any turns, disclosed or not disclosed, and the clients therefore get the full interest offered by the bank.
Our own requirement is normally simply that a minimum of £1000 must be held in the underlying SIPP bank account (which is with Cambridge and Counties Bank) and any surplus cash can be moved (with no extra fees) to any bank of the clients choice to earn higher interest.
A recent survey by Money Management magazine has shown that over 80% of SIPP cash is earning less than 0.5% per annum. Even more worryingly, of the 63 providers in the survey, 15 do not allow investment in any other cash account, while many of those that do allow it charge members for the privilege, obliterating most, if not all, of the potential extra interest. To reiterate: we allow other cash investments and make no charge for arranging it. We urge advisors to review the cash options in their clients SIPPs.
Bear in mind too that surveys indicate that overall more than 20% of SIPP assets are in cash. All the more reason why IFAs need to look at how best to maximise the return on their clients cash. As we say, we help facilitate this rather than put up barriers.
Opportunities for IFAs
Research carried out by Investec Wealth & Investment has shown that whilst half of SIPPs are managed directly by the SIPP member or their partner, less than 30% of those SIPP members felt very confident that they had the expertise required to maximise their returns. Despite this, only 15% of those who were managing their own SIPP said they were likely to appoint an investment professional within the next 12 months.
Obviously a large number of these self-invested SIPPs will be small online SIPPs but there are bound to be a significant number of larger SIPPs out there that would benefit from quality investment advice from an appropriate financial advisor. So the opportunity is there for IFAs to not only potentially find new clients (perhaps by arranging local investment/pension seminars) but to also make an immediate positive impact on them by providing them with professional long term investment advice.
Unisex GAD rates
HMRC has issued updated guidance on maximum GAD rates for drawdown pension calculations. When these calculations fall due on or after 21 December 2012, providers must use male rates for both men and women aged 23 and over. This will improve maximum GAD rates for women compared with the current female rates. Providers will continue to use the existing unisex rates for dependants' pensions for the under 23s. There are no changes to the rules setting out when the maximum GAD calculations fall due.
And annuity rates continue to worsen .
With gilt yields continuing to be very low, and not expected to rise in the foreseeable future, annuity rates get worse and worse. A male aged 65 would typically get about £5,600 per annum for a £100,000 purchase price. You do not need an actuary to tell you that it will take 18 years of pension payments just to get the capital back and 18 years is about the expectation of life for a male aged 65. This calculation is though not surprising when the underlying interest used in calculating the annuity will be close to zero by the time the insurance company has allowed for expenses and their profit.
We are certainly seeing very few annuity purchases from our SIPPs.
Gilt Yield for Drawdown
The gilt yields to be used for drawdown calculations are:
We do not give financial advice and no comments here are intended as such. Theabove informationisbased on our understanding of the legislation governing pensions at the time of writing. Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.
This Newsletter is intended for professional advisors only, not members of the general public
MW Pensions Ltd
Oaklands Park, Hooton Road
Hooton, South Wirral
Tel: 0151 328 1777 Fax: 0151 328 0707
Authorised and Regulated by the Financial Services Authority
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