HL cash SIPP

TARDIS

Reading their website it seems you can hold cash in a Hargreaves Lansdown SIPP and draw it down for free. They even give a small interest rate. Am I missing some hidden catch here?

bowlhead99

They offer the pension wrapper for free in the hope/expectation that they will earn money from investment platform fees or transaction fees when you hold, buy or sell investments inside the wrapper.

They used to have an account closure fee, and reserved the right to close down and distribute the proceeds of small pension accounts (and charge the closure fees) if the account was under £1k balance. That would discourage people from opening and closing an account every year, or simply having a pound in it to keep the account alive while contributing and quickly withdrawing a few thousand pounds each year without ever investing real money and giving HL a chance to make income for account maintenance and the work they were doing.

However last year the FCA made grumbles about investment providers charging closure and exit fees or transfer fees.

As HL get most of their income from a pretty high ongoing charge for holding customer's investment funds (as opposed to other providers who charge a lower fee to hold investments and charge incrementally on an activity basis to open an account, invest, sell, drawdown, close etc etc) they felt it was in their best interests to vocally support the regulator in the ethos of dropping of transfer fees or closure fees, and instead hope they could cross subsidise the customers who don't give them much income with the ongoing investment platform charges of those who do. The loss of exit fees would probably hurt their smaller rivals more.

As a consequence, there are some niche situations where you can basically get HL to create you an account for nothing, drawdown for nothing, then close it later for nothing.  If you never actually buy or hold any investments they won't be making money from you, and even if you invested a couple of grand in a fund they probably wouldn't make enough platform fee on it for the hassle of creating the accounts and handling your customer service queries. But they will let you do it in the hope that you might buy something and knowing they have a million other customers from whom they do make some revenue.

TARDIS

Many thanks bowelhead99 for the clarification and excellent explanation as always

marlot

TARDIS said:

Many thanks bowelhead99 for the clarification and excellent explanation as always

I think you meant bowlhead!!!!

tigerspill

I called them on exactly this about an hour ago.  They confirmed no setup, running or withdrawal charges.
I have just finished setting one up for my OH.
Looked at AJB and HSD (Cash) - Both were more expensive than HL for what we are planning for her SIPP.

TARDIS

marlot said:

TARDIS said:

Many thanks bowelhead99 for the clarification and excellent explanation as always

I think you meant bowlhead!!!!

Doh!

TARDIS

tigerspill said:

I called them on exactly this about an hour ago.  They confirmed no setup, running or withdrawal charges.
I have just finished setting one up for my OH.
Looked at AJB and HSD (Cash) - Both were more expensive than HL for what we are planning for her SIPP.

Excellent- I worry when something looks too good to be true, but looks like it’s okay in this situation (if you ignore inflation erosion - but it’s only for a few tax years to draw down a small pension in this case so not a significant issue).

caveman38

Yes it is free of fees but they are not a charity.
Interest is tiered within bands so you will currently receive 0.10% (gross) on the first £4,999.99, 0.15% on the amount above £5,000 and below £24,999.99, 0.20% on the amount above £25,000 and below £99,999.99, and 0.35% on balances over £100,000.
Therefor if you have say £50,000 in the SIPP you will earn £100 and not pay any fees, but. They may invest the cash at say 1.5% and earn £750 and will net £650 for providing you with a fee free SIPP. 

tigerspill

TARDIS said:

tigerspill said:

I called them on exactly this about an hour ago.  They confirmed no setup, running or withdrawal charges.
I have just finished setting one up for my OH.
Looked at AJB and HSD (Cash) - Both were more expensive than HL for what we are planning for her SIPP.

Excellent- I worry when something looks too good to be true, but looks like it’s okay in this situation (if you ignore inflation erosion - but it’s only for a few tax years to draw down a small pension in this case so not a significant issue).

I know and is why I called them.  AJB - only charges are £30 per withdrawal.

Bearingup

Make sure you choose paperless delivery for Investment Report & Contract Notes in your personal details, under account settings on the HL website if you go ahead, as there is a charge of £10 every 6 months to get documents posted to you if you don't, 

Audaxer

bowlhead99 said:

They used to have an account closure fee, and reserved the right to close down and distribute the proceeds of small pension accounts (and charge the closure fees) if the account was under £1k balance. 

Although there is no exit fee now, I still thought you had to leave a balance of £1,000 in an HL SIPP to keep it open?