March 2008

Investing in cash

Last month I discussed cash deposit as an asset for SIPPs, and how we find that generally, even after all costs, accessing deposit based accounts via an offshore bond can lead to greater returns than directly holding UK deposit accounts owing to the higher rate currently on offer.

However, this may not always be the case, or it may be that cash is no longer seen as the asset of choice, and we now need to look further afield.

Let us suppose that we have accessed our cash deposit via the offshore bond and that we are now faced with the dilemma of withdrawing funds from the offshore bond either buying the investment fund directly or via a trustee investment plan.

In considering this I have chosen a number of popular funds, assumed 0% initial and 0% trail commission.

I have chosen Winterthur as the TIP provider and AXA as the offshore bond provider simply as I can not fit any more providers in this space. I believe their products to be among the market leaders.

You should note that early encashment (typically in the first five years) from trustee investments or offshore bonds could result in a penalty being applied - this will vary between providers. I have assumed 3% initial and 0.5% renewal is rebated for direct investments.

I would like to think what I have demonstrated over the last couple of articles is that there are clearly advantages to be gained by thinking outside of the traditional route to market for SIPPs. Offshore bonds, even allowing for the extra expense of running the bond, are now at least as viable an investment as the more traditional trustee investment plan - both have their place.

Tony Clements
IFA
Park Row Corporate and Private Clients