Sipp cash rates still too low

The research by Investec Bank also found that the average returns are 0.75 per cent on Sipp and Ssas cash. So what can you do about it if you are stuck in a low-interest paying Sipp or Ssas deposit?

Some pensions allow you to shop around for your account, though this tends to be the expensive full service Sipps. If you are in a low-cost Sipp, it is likely that you only have the choice of one account.

Even if you are stuck with one provider, there may be options to increase your interest rate. Hargreaves Lansdown, for example, only pays up to 0.25 per cent on Sipp cash, but if you are willing to lock in your money for a period of time the rate increases. If you were willing to tie up your money for three months from 17 November, you would receive a rate of 1.81 per cent, and it has more such offers going forward.

Another option is to switch to a provider that allows you to shop around for an account. However, you could incur an exit fee, and setting up a new Sipp may involve establishment charges. Sipps that allow you to shop around tend to have higher charges.

You should only switch if it is worth your while: if a bit more interest on the cash portion of your pension does not outweigh the costs of moving and further charges, it is probably not a good option. You should also consider whether you really need a full service Sipp - are you going to be paying for a load of features you are not going to use?

"I would only transfer a client if the numbers stacked up and the full Sipp is suitable for that client," says Murray Woods, director at pension consultants Mattioli Woods.

You should also consider how important cash in your pension is. "The rate on the cash in your pension is only one element of the overall package, it is not the only deciding factor," says Laith Khalaf, pension investment manager at Hargreaves Lansdown. "Don't look at it in isolation."

Other considerations include:

■ Charges

■ Service; and

■ Investments available via the Sipp.

If cash is not a large proportion of your overall pot, then the effect on the overall pension should be minimal. If you are younger, your pension should be largely or wholly invested in high-growth areas. With the current market turmoil you may have opted to be sitting on the sidelines by holding cash, but again this is unlikely to be a long or even medium-term position.

If you are de-risking in the run up to retirement, possibly before buying an annuity, then you are probably gradually shifting your portfolio into lower risk areas. You may hold cash for a year or two before buying an annuity, but ultimately this is not a long period. You will also lose less to inflation erosion than you will to losses from higher-risk investments. Cash is useful for security and you could consider that a bit of inflation erosion the price you pay for security.

Inflation is also unlikely to persist at current levels for the long-term: last month it started to drop and the Bank of England predicts it will come down next year.

If you are in drawdown rather than having bought an annuity, your portfolio should include a mix of investments. While you should probably hold up to around two years' income in cash, you should also have a balance of other higher-risk investments to ensure that your pot lasts you until you die.

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Source: Investment Sense as at 24 November 2011.