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Sipp fees cut despite low interest rates tightening margins

Product providers have continued to cut Sipp fees over the past five years despite consistently low interest rates squeezing profit margins, according to Defaqto.

Figures from the financial research company show the average set-up fee for a £50,000 Sipp investment has fallen by 16 per cent from £267 in March 2007 to £224 in May this year.

Average annual admin fees have also dropped between 2007 and 2011. The figure for a £50,000 Sipp investment fell from £409 to £368 while the fee for a £1m investment dropped from £651 to £602.

Defaqto wealth management insight analyst Andy Leggett says a rise in the use of technology and competition in the market has driven down prices despite “huge cost pressures”.

Low interest rates harm some Sipp providers’ profits because they reduce the margin between the interest rate they pay to clients and the interest rate they receive from the bank running the Sipp accounts.

Leggett says: “The decline in fees is a reflection of the competition in the market and the utilisation of technology to bring costs down, despite Sipp providers facing huge cost pressures, particularly from low interest rates.

“However, demands for increased capital requirements and greater disclosure from the FSA will inevitably drive costs up. It is not clear yet whether these changes will halt the trends we have seen.”

Brookes Macdonald financial planning director Michael Owen says: “The continuing reduction in fees has to be unsustainable. The next decade will inevitably see a consolidation of the Sipp market.”

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