Fees fees fees

JonBr

No doubt this is a stupid question but bear with me.

At the moment I have a single stakeholder pension that was set up by my employer. I have transferred other pensions to it and it is doing well.

At some point I am going to want to have access to the pot by means of retiring. My question is, is there a way to do this without buying an annuity or having to pay yet more fees in a drawdown type situation? I mean, can I not transfer the lot into a non fee paying but interest earning cash account and draw off it? It has to be in some sort of "pension account" otherwise I suppose it is deemed taken and exposed to full-on tax (apart from the first 25%), but is there some place to put it where it can be safe from greedy pension provider fees?

xylophone

If you transfer the whole lot to Hargreaves Lansdown SIPP and hold in cash there will be no fees - but the interest is minimal.

https://www.hl.co.uk/pensions/drawdown/charges-and-interest-rates

232607

JonBr wrote: »

No doubt this is a stupid question but bear with me.

At the moment I have a single stakeholder pension that was set up by my employer. I have transferred other pensions to it and it is doing well.

At some point I am going to want to have access to the pot by means of retiring. My question is, is there a way to do this without buying an annuity or having to pay yet more fees in a drawdown type situation? I mean, can I not transfer the lot into a non fee paying but interest earning cash account and draw off it? It has to be in some sort of "pension account" otherwise I suppose it is deemed taken and exposed to full-on tax (apart from the first 25%), but is there some place to put it where it can be safe from greedy pension provider fees?

If you don't want to pay fees but want to earn interest you're asking for a bit too much. Your bank won't charge you a fee but will give you next to nothing in interest. They have other means of earning money from you as a customer that a pension Co doesn't so it is unrealistic to think that a pension Co can better your bank with cash funds.

OldMusicGuy

AFAIK you used to be able to hold fixed interest savings bonds in a SIPP but now you can't, if this article is to be believed: https://www.telegraph.co.uk/pensions-retirement/financial-planning/you-cant-hold-your-sipp-money-in-fixed-rate-bonds-savers-told/.

I know that most providers (like Hargreaves Lansdown) do not allow this. Hopefully someone more knowledgeable than me might comment in more detail as to whether this was allowed and why it changed. Right know I think your only fee-free way of holding money in a personal pension is to find a provider (like HL) that does not charge you a fee for holding cash. But you will be losing out to inflation.

You need to plan what you will do in retirement. For example, I have just retired and I have most of my SIPP invested for the long term but am holding some of it in cash right now so that I have enough of a buffer to protect me from any market downturns in the early years of retirement.

pip895

Your best bet is to place it in a provider like HL and invest at least part of it conservatively. Leaving enough for a couple of years payments in cash. This way you stand a much better chance of the pot growing or at least keeping up with inflation.

Most people remain invested during drawdown (taking an income) why do you want to convert everything to cash?

AnotherJoe

JonBr wrote: »

No doubt this is a stupid question but bear with me.

At the moment I have a single stakeholder pension that was set up by my employer. I have transferred other pensions to it and it is doing well.

At some point I am going to want to have access to the pot by means of retiring. My question is, is there a way to do this without buying an annuity or having to pay yet more fees in a drawdown type situation? I mean, can I not transfer the lot into a non fee paying but interest earning cash account and draw off it? It has to be in some sort of "pension account" otherwise I suppose it is deemed taken and exposed to full-on tax (apart from the first 25%), but is there some place to put it where it can be safe from greedy pension provider fees?

There is but it would be barmy to do that since you'd be losing several % a year to inflation so over say 15-20 years you'd probably halve your money in real terms. You are letting the tax tail wag the dog.
As said, by all means put some in cash, but also , put some in conservative funds, some in maybe less conservative funds, but just turning it all to cash, you might as well buy an annuity and be done with it.

P.s. your initial question isn't stupid, but your plan is is that the same thing ?.

dunstonh

can I not transfer the lot into a non fee paying but interest earning cash account and draw off it?

In most cases that would be an unsuitable thing to do.

but is there some place to put it where it can be safe from greedy pension provider fees?

You do realise that savings accounts typically have higher implicit charges than investment/pension explicit charges? So, actually, you would be increasing the charges you pay.

ColdIron

JonBr wrote: »

is there some place to put it where it can be safe from greedy pension provider fees?

Few people will provide a service for nothing, try hiring a plumber on that basis, this is not greed. Pension providers essentially run a PAYE service for you, paying you a monthly (or quarterly or annual) income, deducting mandatory tax, supplying an annual P60 and providing a website and customer services for their clients

However as noted above HL will do all of the above at no fee and even pay you a small amount of interest

Something I have been keeping half an eye on is their intention to provide a cash savings service by involving other third party banks such as Aldermore, Metro Bank, Shawbook etc. It has been endlessly delayed but would be welcomed by many that maintain a cash balance within their pensions

http://citywire.co.uk/money/rate-rises-will-help-hargreaves-cash-in-on-savings/a1092388

Thrugelmir

JonBr wrote: »

My question is, is there a way to do this without buying an annuity

What's wrong with an annuity , even for just part of your pot. Would pay you a far higher yield than holding cash.

atush

Holding cash in a pension for up to 30 years is barmy.

If you are going to Drwdown, you need some sort of equity investment or your money will shrink in buying power and you stand a good chance of running out before you die.

JonBr

Well, first off, thanks for the replies. I agree that, in the light of what you are saying, the plan (such as it was) was a bit silly!

I'm planning on retiring in the next couple of years and downsizing, so the "pot" would likely be split as 50% invested (in the pension funds) and the rest as cash. Sounds like keeping the pension as-is would be the best thing to do, and the cash mostly invested in a range of accounts (ISAs, bonds, etc) with a year or so of funds in an instant access account for drawdowns. Maybe I should continue paying into the pension, but that would be using what is effectively tax paid money so it wouldn't be as efficient as continuing to work and paying it in via salary sacrifice. Perhaps a compromise might be to pay enough in to cover the fees so the funds are not eroded.

I might also consider what funds the pension is invested in. At the moment it is something like 75% in US equities with the rest in UK equities, and both groups of funds are medium to high risk. So it might be in order to transfer them into lower risk funds. In particular, the US investments are sensitive to exchange rate movement so there may come a time when it makes sense to transfer them to UK funds to crystallise the currency gains made to date. Say, next March when the Brexit Implementation Period begins?

This is a pretty big set of decisions I need to make. Selling the house, finding something smaller, working out what to do with the released equity, and all the time assuming its value will hold. Makes my head spin!

About annuities. They may have their uses but the rates they are paying are pretty derisory, and there is nothing left when you die. That's why I'm dead set against them - so I am looking for something that allows a degree of flexibility, a bit of growth and leaves something after I'm gone. Tricky...