Are cash pensions available?

Sillychuckie

Hi there, this will seem like a very newbie question. Although I am an active MSE'r elsewhere on the forums, this is the first time I have ever ventured towards the pension threads, for the following reason.
I read Martins blog about pensions and noticed the following:

MSE_Martin wrote:

It is perfectly possible to get the pensions tax break and yet put the money in what is effectively a safe savings account

I am 22 so haven't yet thought about pensions. However, I hate the taxman and his little fingers, so have done well over the years to build up an ISA portfolio I'm proud of. I haven't played with shares/investments and have only used the 3k cash allowance up till now (haven't had much more than 3k to invest each year anyway).
Now, as I'll be getting a job soon, assuming I fill up my ISA allowance each year (probably the full 7k from now on), to keep the rest of my money away from the taxman, a pension plan sounds like a good idea, just as a wrapper.

Are there any cash investments that you can wrap in a pension (like a mini cash ISA)? If so, what kind of rates do they provide? Where might I look.
Complete pension newbie. Used to just figure that I'd worry about it when im older, but I know a tax saving opportunity when I see one. :rotfl:

dunstonh

You can place cash deposits into a SIPP but you would be daft to do so at age 22. 40 odd years in a cash account is wasteful and you wouldnt make enough money over those years, even with tax relief, to beat inflation and charges.

margaretclare

Hi

There is a cash option in a SIPP but it pays a miniscule rate of interest - 1% as against 4.5% which you can get with a decent ISA. It's not meant for long-term savings, the idea is that money is held in the cash account temporarily while you decide what investments you want.

Go for the shares ISA - at age 22, over the next 30 years (assuming that ISAs are around that long!) you'd be able to build up a lot, and over that time, there's a chance to even out the peaks and troughs in the stock market.

Of course, if you get a job where the employer tips in pension money to match your contribution, you'd be daft to turn that one down!

Best wishes

Margaret Clare

PS: I wish to goodness I'd been as 'savvy' as you at age 22 - I'd have been a very very rich woman today! Good luck to you.

EdInvestor

margaretclare wrote:

There is a cash option in a SIPP but it pays a miniscule rate of interest - 1% as against 4.5% which you can get with a decent ISA.

Interest rates vary with the SIPP.

Sippdeal's cash interest rates are higher and there is no annual fee to pay ( as there probably would be at HL if you left the money in the cash account).

The Newcastle BS Sipp offers a rate of over 4%, but its fees are rather high so this might only be attractive to someone who was very risk averse with a fairly large fund.

No tax is payable on interest in pensions, so you should gross the rate up to compare.

You can also invest in money market funds where you will get a yield (like interest) and some capital growth as well.

Watch out for charges on these funds, as with low returns, these become even more important.

As others have said it wouldn't be sensible to invest all your pension money in cash or money market funds over your whole working life, but cash funds can play a role in reducing the overall risk of your pension saving, as you can split up your money between higher and lower risk assets.

This type of risk reduction is of course exactly what "managed" and "with-profits" funds are supposed to offer - but often don't. :rolleyes:

Sillychuckie

OK, thanks all.
I guess I'll look into the stocks and shares option then. I didn't like the idea of much risk, but I suppose over such a lengthy period of time, I should be fine.
Once I have filled my standard ISA with the 7k allowance and taken off general living expenses, I'm not sure I'll have a huge amount left for the pension wrapper anyway. We shall see..
TYVM!

dunstonh

I guess I'll look into the stocks and shares option then. I didn't like the idea of much risk, but I suppose over such a lengthy period of time, I should be fine.

Cash is riskier than stocks and shares over 40 years. Plus risk is not an on/off situation but a sliding scale. Nothing is risk free. Not even cash.