Holding cash in pension fund

laser707

What is the best way of holding cash in a SIPP? I have a HL SIPP and my contributions over the last year are being held as cash as I think funds are currently to high. I have seen various cash type funds but from my understanding current returns are much lower than the annual cost of the funds so I would be getting a negative return holding them.

Are there any better and safe alternatives to holding cash in a SIPP?

Thanks

Linton

Over the past year only 6 global funds out of 242 listed on trustnet gave a return of less than 20%. Pity you missed out.

What do you want to get from this non-cash fund and why isnt holding cash as cash good enough?

laser707

I'm looking for a stable way to hold money with minimal risk. When conditions are right I will revert back into equities...

jimjames

laser707 wrote: »

I'm looking for a stable way to hold money with minimal risk. When conditions are right I will revert back into equities...

When will that ever happen. As above holding cash you're losing out and may never know when to get back in. When the markets dropped over the last 12 months why didn't you buy in then? Which funds are overvalued? Not all markets are at the same levels.

Why not bonds? Apart from them being over valued ...

AnotherJoe

laser707 wrote: »

What is the best way of holding cash in a SIPP? I have a HL SIPP and my contributions over the last year are being held as cash as I think funds are currently to high. I have seen various cash type funds but from my understanding current returns are much lower than the annual cost of the funds so I would be getting a negative return holding them.

Are there any better and safe alternatives to holding cash in a SIPP?

Thanks

If you mean long term (and what else is a SIPP for?), investing it in something that will outpace inflation, such as equities.

If equities fell say 20% on Monday, would you buy back in or wait for a further fall?
What is your "buy in" value?

Apodemus

AnotherJoe wrote: »

If you mean long term (and what else is a SIPP for?)...

Might there not be an argument for holding cash in a SIPP as a short-term pre-retirement pension top-up, simply to turn over for the tax relief?

Linton

laser707 wrote: »

I'm looking for a stable way to hold money with minimal risk. When conditions are right I will revert back into equities...

What is your problem with holding cash in your SIPP as cash in your SIPP? Why do you want to hold it in some other form?

That is, if that's what you really want to do. A bad idea in my view, other than temporarily. How will you know when conditions are right? What if they don't become "right" for years by when even depressed prices are higher than now?

AnotherJoe

Apodemus wrote: »

Might there not be an argument for holding cash in a SIPP as a short-term pre-retirement pension top-up, simply to turn over for the tax relief?

I think that would fall foul of recycling rules.

Better to hold it In a account giving a few % interest before topping up to get the tax bump

bowlhead99

Apodemus wrote: »

Might there not be an argument for holding cash in a SIPP as a short-term pre-retirement pension top-up, simply to turn over for the tax relief?

Yes, absolutely. Or for that matter, a post-retirement top-up, again for the tax relief. My mum's small SIPP is 100% cash waiting for tax relief to be added at the moment before doing a withdrawal next month, and then she will be using that withdrawal to help her put another £3600 gross in during April to use up the 2017/18 allowance. No real point taking market risks between now and then.

Still, that's quite different to having a long term investment horizon but waiting for some mythical moment for 'conditions to be right' before going for equities. If you are cautious, just pick a lower risk fund, IMHO. But each to their own.

At HL they pay a low interest rate on cash sitting dormant in the account. £100k+ would earn you 0.1%. £5k would earn you 0.04%.

Consumer price index was 1.6% for the year to last December, and RPI 2.5%, so your 0.04% from cash in a SIPP is not going to be keeping pace with that.

If alternatively you invested in a money market cash fund yielding 0.3%, you would then attract a HL platform fee of 0.45% for holding the fund, so would be left at -0.15%. Basically if you want to be in cash for whatever reason, and your money market fund is not going to return more than 0.5%, there is no point holding it and paying a platform fee of 0.45% when you could just sit idly in cash.

[edit]
You may like to look at the best buy table for bank products that can be used by SIPPs and SSASs- not sure how up to date it is.
http://!!!!!!!!!!!!!!!!!!!!!!!!!!!!/accounts-for-pensions/
[replace the !s with the usual 3ws, investmentsense, dot co, dot uk ; MSE don't like people being made aware that competitors to their parent company exist]

HL's Vantage SIPP is a simple product with their own internal solution for holding cash, so you're not going to be able to have HL be your SIPP trustee and use one of those accounts. However, if you bought a more expensive SIPP product from somewhere else, the trustees would allow you broader investment options (such as buying commercial property, select your own cash accounts and brokers, etc). Presumably you don't have complex needs and a large amount of money in your SIPP for that all to be worthwhile, as if you had a large amount of money in the SIPP you probably wouldn't be using a provider like HL which charges a high percentage-based platform fee on funds.

Vortigern

Apodemus wrote: »

Might there not be an argument for holding cash in a SIPP as a short-term pre-retirement pension top-up, simply to turn over for the tax relief?

AnotherJoe wrote: »

I think that would fall foul of recycling rules

There is an argument for cycling cash through a SIPP and it possibly does not breach the recycling rules. Discussed on the Pension board below:

https://forums.moneysavingexpert.com/discussion/5580163

Apodemus

AnotherJoe wrote: »

I think that would fall foul of recycling rules.

Better to hold it In a account giving a few % interest before topping up to get the tax bump

While I don't know the full regulations on recycling, I really can't see how anyone could possibly fall foul of recycling rules when they have not received anything to recycle. I am talking about putting money into a SIPP in the last few years leading up to retirement (or to fund early retirement after age 55 but before DC or DB scheme age). At some point, the money going into the SIPP would have a shorter investment horizon than would be sensible for stock purchases and it might make sense for this to be held as cash in the account, even at nil interest rates.