Hargreaves Lansdown SIPP

caveman38

I have spoken to HL about opening a SIPP and leaving the money in cash and adding to it for another 3/4 years. I was informed that as no investments are chosen, they would not impose any fees for administering the SIPP.
Therefor after 4 years they would have held the money in a trustee account and claimed the PIRAS and not charged anything for that service.
Am I missing anything as it is unusual to receive a service for free. I know that most people would invest that money and I'm most probably only one of a few but paying no fees is better than earning a minimal interest rate in a SIPP deposit account.

parcival

This is what I am doing.......

I transferred a small pension to them which I hold in cash. I am withdrawing £500 a month so the cash balance is reducing over time.

I did not want an 'investment' as I am withdrawing over a 5 year period to max out my tax free personal allowance and could not afford a large stock market fall.

caveman38

parcival wrote: »

This is what I am doing.......

I transferred a small pension to them which I hold in cash. I am withdrawing £500 a month so the cash balance is reducing over time.

I did not want an 'investment' as I am withdrawing over a 5 year period to max out my tax free personal allowance and could not afford a large stock market fall.

And without any fees?
Are you happy with their service?

parcival

No fees whatsoever and the service is excellent

zagfles

caveman38 wrote: »

I have spoken to HL about opening a SIPP and leaving the money in cash and adding to it for another 3/4 years. I was informed that as no investments are chosen, they would not impose any fees for administering the SIPP.
Therefor after 4 years they would have held the money in a trustee account and claimed the PIRAS and not charged anything for that service.
Am I missing anything as it is unusual to receive a service for free. I know that most people would invest that money and I'm most probably only one of a few but paying no fees is better than earning a minimal interest rate in a SIPP deposit account.

What's PIRAS? Do you mean tax relief?

But yes, holding cash at HL is free, but you'll get very little interest. Sometimes they have fixed rate offers, look out for these.

Silvester89

I'd definitely recommend HL.

They have really good customer service, a great website, great apps on your mobile device. They are also really transparent about fees and fairly reasonable where you are charged.

I had a friend at work pestering me to join for ages and I kept putting it off. Wish I had joined sooner now!

jamesd

caveman38 wrote: »

Am I missing anything as it is unusual to receive a service for free. I know that most people would invest that money and I'm most probably only one of a few but paying no fees is better than earning a minimal interest rate in a SIPP deposit account.

It's not quite free. They are keeping most of the interest that they make on the money. It's something that has shown up in their shareholder annual reports.

They have announced that they are planning to make it possible to deposit money in a range of accounts that will pay more interest and you can choose which one(s). You can expect that they will take a cut of that as well.

Fermion

Jamesd is quite correct as you are missing out on any interest by effectively providing an interest free loan to HL. The key question is how much are you going to invest and do you intend to withdraw it (crystalise) as a pension in 3/4 years. Don't forget that you can only withdraw 25% as a pension lump sum and then only if you are pension age

You might be better off looking at putting it into a Stocks & Shares ISA with HL- you can put away up to £15,200 this tax year (and £20,000) next tax year. You can withdraw the full amount at any time

However either way I think you would probably be better off taking a punt and investing in some good quality Equity Income Funds - these can typically yield about 3.5% per annum although there is a small risk that the capital investment might go down (but it could go up as well)

I did this some years ago for an aged Aunt that I had Power of Attorney for (transferring from a shocking interest Building Society Bond that had matured) - Worked out well for her.

bowlhead99

Fermion wrote: »

Jamesd is quite correct as you are missing out on any interest by effectively providing an interest free loan to HL.

Agreed with that. For the service of administering the tax relief collection, and with the fact that they currently allow closure at a very low cost if you have been running the account for over a year, missing out on the quarter percent of base rate it is not a huge cost in the context of the free government money they obtain for you.

The key question is how much are you going to invest and do you intend to withdraw it (crystalise) as a pension in 3/4 years. Don't forget that you can only withdraw 25% as a pension lump sum and then only if you are pension age

You mean that if you are pension age you can only withdraw 25% as a tax free lump sum, but you can also withdraw the other 75% taxable at your marginal rate, which might be 0% in the year you choose to take it.

You might be better off looking at putting it into a Stocks & Shares ISA with HL- you can put away up to £15,200 this tax year (and £20,000) next tax year. You can withdraw the full amount at any time

Correct, though the reward for not being able to withdraw the amount at any time until pension age (well, unless you are already of pension age and then you could), is free tax relief money, which you don't get with the S&S ISA.

However either way I think you would probably be better off taking a punt and investing in some good quality Equity Income Funds - these can typically yield about 3.5% per annum although there is a small risk that the capital investment might go down (but it could go up as well)

This is the second time in your total two posts on this forum that you have advocated equity income funds. You say there is a small risk that the capital investment might go down. Which equity income funds would you advocate which could not easily lose, say, 30% over the 3-4 year timeframe mentioned by the OP?

Does a loss of 30% plus on an equity fund sound suitable for the OP, who was intending to only hold cash and was only looking to use the investment wrapper offered by HL or their rivals in order to take the tax relief at point of contribution which HL would process for him? Or for poster #2 who is holding a small cash fund with HL because they can't afford investment losses but wish to maximise their tax allowances?

I did this some years ago for an aged Aunt that I had Power of Attorney for (transferring from a shocking interest Building Society Bond that had matured) - Worked out well for her.

That's good to hear, but did you do that during an equity market crash, or can we assume it was during a flat or growth period for equities? Perhaps the outcome of what you did with the aunt's money did not really matter much to her because she lacked capacity to understand the risks which was why you had PoA in the first place.

Or perhaps it was over a long period of a decade plus, over which you and she had time for the full economic cycle to play out, which is not the case with the first two posters on this thread who are looking for a solution for a three to five year period.

jerrysimon

Been doing the same for my wife at the start of this year when I initally put in 6K before the new tax year. Will put in another 6K or so this year before we draw it out next april with a 20% uplift

As a short term option I thought it was a good punt given she was 55 last October. Wish I had started a year earlier.

Jerry

bowlhead99

For those with ready access to the cash it's a good wheeze. E.g. mum is not using her personal allowance (due to deferring state pension - another good wheeze if you can afford it) so effectively you get grossed up money inside the pension but draw it all out tax free.

It's less effective for those people who don't have any personal allowance left as you only save tax on the taxfree lumpsum 25% of it, which gives <£200 a year at the minimum contribution levels. Which would be eaten up with account closure fees from a lot of providers if you simply closed the account down as soon as you set it up, so you have to leave it running a while, and then it's frustrating to be only in cash for that time if you can't afford investment losses on the money.

The £3600 gross limit is potentially a good earner for people with low/zero income who have the cash available to max it out, and there will be a lot of them out there, though it has been at that £3600 level for over a decade ; I don't expect there is much call from voters to have this allowance tick up with inflation as it is a relatively small portion of the population who need to use it.