Holding cash in pension fund

laser707

I have kept all SIPP contributions since last July as cash rather than feeding funds which increased in value so much after the Brexit vote/sterling devaluation.
I don't particularly have a problem keeping cash in the current low interest environment. I just wanted to check that I wasn't missing a trick and better alternative options were available. As I mentioned in the original post it seems pointless investing in cash bonds when the costs of doing so resulted in a negative return.
Thanks for the replies and thoughts about money recycling.

ChesterDog

"When conditions are right I will revert back into equities..."

That means you will have missed the boat, upon which others are right now on board.

hyperhypo

I'm coming towards the final 3 years of accumulation phase of my SIPP, which i intend to drawdown to varying degrees before a DB scheme , then SP (at 63 and 66 respectively ...and asking same question as the OP.

Should i for the last two years of accumulation simply leave all monthly allocations as cash, on the basis that i wouldn't have to sell funds to realise cash for the heavy stage of drawdown. In my case i have no sipp or external cash , so it makes some sense to me to build up some inside the SIPP.

Linton

You can hold cash in a pension and it may well be a sensible thing to do if it is going to be used in a few years. You dont say for how many years this SIPP will be drawn down.

However I dont think having no external cash is sensible.

hyperhypo

linton, the absence of cash outside pension sipp is due to high salary sacrifice contributions, c. £1800 per month, to limit exposure to 40% tax, hence all savings effort made into sipp, none spare for ex pension savings.
Hence my reasoning to use SIPP as cash (or short term UK gov bond) savings in final accumulation stage. Three further years of contrib utions, drawdown for 2 years until DB then further 3 years until SP age. Any residual fund post SP age would be a bonus.
Current DC scheme has accumulated > £110k in 5 years, currently 60/40 Vanguard trackers, plus some proptery.

Crafting the final stage of accumulation / pre-retirement my current task , hence the interest in the OPs question on role of cash. Right now (given no cash savings outside ) makes sense to build up some inside of SIPP , if only to avoid having to sell units in downturn.

gmcarthu

I just had a discussion with my advisor re the cash holding in my sipp, seems quite high at £80K which is around 11% of my total pot. The real query I have though is the fact that this cash is generating ZERO return and this seems really odd to me, given that I can get 1.5% approx myself in a building society.

Does this seem normal or is there some sort of scam going on with pension companies getting interest on cash but not paying it out - I doubt if that's the case as regulations would / should not allow that, or maybe there's a restriction for cash in pension pots cannot generating interest ?

Really interested if anyone on here has professional knowledge on this one, as now I'm thinking I need to increase my risk profile in order to have the cash holding in my pot reduced to a lower level, but then I am increasing my overall risk which I don't particularly want to do either

Linton

Global market short term interest rates for cash are close to zero. Banks etc offer relatively high interest rates for immediate access accounts under limited conditions as a loss leader to keep or grow their customer base. For example the 1.3% offered by the post office reduces after the 1st year to 0.25%.

dunstonh

Does this seem normal or is there some sort of scam going on with pension companies getting interest on cash but not paying it out

No, there is no such scam.

Is it in a cash account or an actual cash deposit?

It is normal for platform based accounts and SIPPs to maintain a cash balance in the cash account. People have different views on how much but it is typically around 2-5%. if you are drawing on the pension, then it is normal to have a larger amount (often 12-24 months in addition to the 2-5%).

if you are a cautious investor, then your asset allocation could have a cash element.

Really interested if anyone on here has professional knowledge on this one,

You say you have an adviser. That is the best person to ask and get an answer from as they know your investment strategy, provider, requirements etc.

as now I'm thinking I need to increase my risk profile in order to have the cash holding in my pot reduced to a lower level, but then I am increasing my overall risk which I don't particularly want to do either

Well, you will need to make your mind up. Just remember that there is no risk free option. Even cash has risks. May not have investment risk but it will have shortfall and inflation risk.

However, this again is a discussion you should be having with your adviser. Not much point paying for advice but not taking it or making use of the adviser.

ColdIron

gmcarthu wrote: »

Does this seem normal or is there some sort of scam going on with pension companies getting interest on cash but not paying it out - I doubt if that's the case as regulations would / should not allow that, or maybe there's a restriction for cash in pension pots cannot generating interest ?

When you deposit money in a bank you are giving it to them and you become a creditor. They can lend this money out at profitable rates or even use it to settle their debts. Pensions cannot do this and you'd be a bit upset if they did

gmcarthu

Thanks for the replies so far guys.

I have of course asked my advisor to respond and in fact I have my annual review next week and we will discuss it then. I have a low-medium risk profile and would expect to hold some cash at times, I just cannot get my head round why the return is zero - not close to zero, but specifically zero, so that seems to me a conscious decision and not subject to market rates !!

Is it in a cash account or an actual cash deposit? - I don't know the answer, on my pot summary it just says 'Capital account balance'.
What is the differentiation between the two types ?