Hargreaves Lansdowne SIPP Reinvest Income

Meobots

Hi
I am looking at Hargreaves Lansdown SIPPs and have a question about the income earned. Can anyone explain to me the difference between automatically reinvesting the income and holding money on the account and what the benefits or disadvantages be?

Im pretty new to the pension thing so Im trying hard to learn but there is a lot to figure out.

Thanks.

cloud_dog

Meobots wrote: »

Hi
I am looking at Hargreaves Lansdown SIPPs and have a question about the income earned. Can anyone explain to me the difference between automatically reinvesting the income and holding money on the account and what the benefits or disadvantages be?

Im pretty new to the pension thing so Im trying hard to learn but there is a lot to figure out.

Thanks.

The benefits or disadvantages are really related to what you are trying to achieve.

For example if you are a number of years away from retirement/drawing the pension then leaving the income as cash will not do you any long term benefits. If you might need some of the income to help subsidise/pay for any ongoing HL charges then that is useful and one way of doing it.

If you do not need the actual cash income/payment, and you hold funds (OIECs) then perhaps see if you can switch to the accumulation version (ACC) of the fund you are using. That way money is not actually paid out to your account but is automatically incorporated in to the value of the fund and reflected in a slightly higher unit price than the income version (INC).

dunstonh

Im pretty new to the pension thing so Im trying hard to learn but there is a lot to figure out.

SIPPs are the advanced option for experienced investors looking to utilise investments that are not typically present in stakeholder pensions (SHP) or personal pensions (PPP). By default, SIPPs are a more complicated option. Have you considered a simpler option? (SHPs and most PPPs do not operate a cash account for example)

In most cases we reinvest dividends into the cash account to keep the cash floated to pay charges and then any excess is reinvested back into the funds that need rebalancing. Not necessarily the same fund that paid the dividend.

However, it really depends on what you are looking to achieve and how you are investing.

Meobots

Thanks! Ill have to check all of that out.

What about the ready made SIPP portfolios? How are they viewed by investors?

dunstonh

What about the ready made SIPP portfolios?

Most are too expensive. Indeed, often more expensive than an IFA arranged portfolio.

It may be that robo-guided option is more suited for you. Not the cheapest. Not the most expensive. Not the best but not the worst but takes a lot of the decision making out of your hands. An option that you cant really go wrong with.

Meobots

Just out of curiosity... on the automated income reinvestment on HLs SIPP they charge 1% up to £10 to do this. Couldnt I just take the cash then invest it back into the SIPP myself for free?

dunstonh

Couldnt I just take the cash then invest it back into the SIPP myself for free?

No. That would be classed as a withdrawal.

Remember HL is an expensive platform. Maybe a cheaper option would be better. Although HLs software is better for those that are less internet savvy.

bowlhead99

Meobots wrote: »

Just out of curiosity... on the automated income reinvestment on HLs SIPP they charge 1% up to £10 to do this. Couldnt I just take the cash then invest it back into the SIPP myself for free?

The fees you're seeing at HL for that "re investment" is for if you're investing into individual company shares (Tesco, BP etc etc) or investment trusts listed on a stock exchange and those shares or trusts pay you dividends from time to time. In those cases if you wanted to reinvest the money you have to get HL to go and buy you more shares on the stock exchange.

Usually, it would cost you more than a tenner in dealing fees to go and buy more shares on the stock exchange, but they have special pricing for dividend reinvestment because they will have lots of customers getting dividends and wanting to invest at the same time, so they can go to the stock exchange and buy all the shares in bulk and charge you less of a fee (i.e., just the 1%, capped at a tenner). That's cheaper than if you manually placed an order yourself to have them go and buy you more shares on the stock exchange.

But in your case if you are only investing in 'funds', and not in shares traded on the stock exchange, you don't need the special reinvestment pricing option because you can just invest the spare cash which arises within the SIPP for free, because they don't charge dealing fees to buy funds (only to buy shares, investment trusts, ETFs).

Dunstonh is right of course that you would not receive the dividends, take them out of the Sipp and then put them back into the sipp to reinvest them. Your dividends from investments within the SIPP account would arrive in the cash account within the SIPP, and could be invested from there right back into investment funds, without leaving the SIPP.

Albermarle

What about the ready made SIPP portfolios?

The idea of a SIPP is that it gives you greater and more flexible choice to pick your own portfolio of investments . So to use their ready made portfolios defeats the object really .

As suggested a SIPP might not be your best option . A traditional personal pension is simpler to operate, and the similar ready made portfolios will probably work out cheaper. Have a look at the Standard Life website as one possibility/example.

Tom99

dunstonh wrote: »

No. That would be classed as a withdrawal.

Remember HL is an expensive platform. Maybe a cheaper option would be better. Although HLs software is better for those that are less internet savvy.

Surely not if you manually re-invest the dividend?

xylophone

Couldnt I just take the cash then invest it back into the SIPP myself for free?

You can leave the income within the SIPP and then re-invest in the stock etc of your choosing.