Holding cash should be about the simplest investment you can make but new rules are expected to cause headaches for pension savers who seek modest returns.
Fixed-term cash deposits allow savers in self-invested personal pensions (Sipps) to earn a better rate of interest on their money in return for locking up their cash for longer periods.
These fixed-rate bonds are typically held for periods of up to five years, with the best offering rates of around 2pc.
But because of a quirk in new requirements imposed by the City watchdog, some Sipp firms are being forced to classify these basic accounts as esoteric “non-standard” assets.
As a result, some providers, including Royal London, are blocking savers from holding savings bonds with a duration of more than 30 days in their Sipp.
From next week Sipp firms will have to hold millions of pounds more in reserve to protect customers’ savings, with the level set according to the proportion of basic and more exotic investments being held.
How Sipps work – the pros and cons of pensions DIY investing
An unintended consequence of the regulator’s well-intentioned move is that people who want a safe home for their pension cash are being frustrated.
Despite their simplicity, cash bonds are being deemed non-standard assets by many firms to comply with the rules, which state that assets must be able to be sold within 30 days to be considered simple.
However, more sophisticated Sipp products – often referred to as “full Sipps” – will not block cash bonds or less liquid assets such as property. But these Sipps are typically more expensive and available only through financial advisers.
Greg Kingston of Suffolk Life, which offers full Sipps, said his firm’s customers would not be hit, but warned that other providers could add extra charges or not allow the investment at all. He said non-standard assets had been tarred by association with failed investments such as certain exotic overseas property schemes.
“This example of simple cash deposits shows that non-standard investments come in many different forms and can be perfectly normal and acceptable – standard in everything other than name,” he said.
Ordinary cash savings bonds are not allowed in Sipps – you need a special kind suitable for pensions.
Although historically low, fixed rates offer a decent boost compared with a standard Sipp instant-access account, where rates are languishing at around 0.5pc or lower following the Bank of England rate cut to 0.25pc earlier this month.
Tags: Fixed-rate bonds
This entry was posted by John on Friday, September 2nd, 2016 at 2:14 pm and is filed under Pension news.
