SIPP: Money Market Funds - Home For Short Term Cash?

Audaxer

tigerspill said:

Audaxer said:

DairyQueen, you may already be doing this, but just wondering if you and your other half are still paying into your SIPPs each year, as when both retired you can each still pay in £2,880 per year. After the £720 tax relief is added, you could each net £180 after tax if you withdraw the £3,600 cash each by UFPLS. Just thinking that might make up for missing out on interest on the cash you are already holding in the SIPP. As I say, you may already be doing this, or it may not be practical for you, but I thought it worth mentioning for consideration.

Can you put this into a SIPP and take it out in the same tax year?

Yes you can, there is a long standing thread about this on the forum. 

DairyQueen

Audaxer said:

DairyQueen, you may already be doing this, but just wondering if you and your other half are still paying into your SIPPs each year, as when both retired you can each still pay in £2,880 per year. After the £720 tax relief is added, you could each net £180 after tax if you withdraw the £3,600 cash each by UFPLS. Just thinking that might make up for missing out on interest on the cash you are already holding in the SIPP. As I say, you may already be doing this, or it may not be practical for you, but I thought it worth mentioning for consideration.

Thanks for mentioning. 

I have zero earned income so, yes, I have been adding the max annually for several years and intend to do so until age 75. It's a good point that the tax relief offsets the inflation hit on cash in my circumstances but others may not be able to use tax relief in this way.

OH has 2016 LTA protection, is in danger of breaching, and will be working (own limited company) until the end of this year. He had to crystallise his SIPPs last year to mitigate against breaching. 

The reduction in the LTA has been a barrier to our continuing to save into pensions as OH is a high earner banned from further contributions and I am limited by the 3600 pa limit. Of course, this means that he cannot use tax relief on new contributions to offset inflation on cash. I am not complaining as the x20 multiplier used to value OH's DB allowed us to contribute much more to his SIPP (before 2016) than would otherwise have been possible. 

NedS

DairyQueen said:

NedS said:

Thank you for this thread, I have read with interest.

I have been holding large amounts of cash in my SIPP for a while having taken some profits and whilst waiting for a market correction to redeploy. I'm with a popular platform that charges a reassuringly expensive platform fee of 0.45%, so money market funds are not particularly cost effective. For example, a money market fund that returns 0.6%, after the 0.45% platform fee only yields 0.15%, and I'm already earning around 0.25% on the cash, so it would actually cost me money to hold a money market fund. Even after reading this thread, I'm not sure there are any viable alternatives on more expensive platforms although I've not fully investigated ETFs.

Anyway, thank you for the interesting thread!

And there lies the rub.

It's a struggle to inflation-proof unwrapped cash given retail rates but SIPP-wrapped cash is a guaranteed loser regardless of platform. Even Minerva wouldn't beat inflation once fees are included.

Whilst accepting that pensions are intended as long-term investments, you describe one common reason for holding a large amount of cash in a SIPP over a relatively short period. My reason is also valid. Neither situation is unusual and yet the majority of mainstream SIPP-providers have ignored this requirement. Their business models don't accommodate cash holdings over any time period.

The question mark over the pricing and function of bonds is now such that I am not alone in querying drawdown strategies that rely on a specific relationship between equities and bonds.

I appreciate that providing too decent a return on SIPP-wrapped cash may encourage people to invest far too cautiously in the accumulation phase but surely the bright sparks that design the business models could invent a product that alleviated this possibility whilst improving the situation for those whose cash is SIPP-trapped for short periods.

I have just begun using HL Active Savings. The rates offered are often close to or match those offered by the best-buys listed on this site, and with the big advantage of single site management. Mr DQ holds a small %age of his portfolio in an HL SIPP (insurance against a technical failure at t'other platform). If only Active Savings were available for SIPP cash. I know, I know. Different market, different legislation, different business model, but those kind of returns would encourage some of us to take a different view of HL's SIPP charges. 

I can but dream.

Yes, with you on everything you say.

In order to help alleviate the disappointment of not earning much on my cash, I firstly try to remember the first rule of investing - don't lose capital, and secondly I am fairly certain that at some point in the next year the market will be lower than it is now so I will look to redeploy that cash knowing I have saved (avoided a loss of) maybe 5% or 10% even if I may have missed out on 1% of interest during the wait. A good opportunity normally presents itself to those who are patient most years, and I doubt 2020 will be much different.

Thrugelmir

DairyQueen said:

NedS said:

Thank you for this thread, I have read with interest.

I have been holding large amounts of cash in my SIPP for a while having taken some profits and whilst waiting for a market correction to redeploy. I'm with a popular platform that charges a reassuringly expensive platform fee of 0.45%, so money market funds are not particularly cost effective. For example, a money market fund that returns 0.6%, after the 0.45% platform fee only yields 0.15%, and I'm already earning around 0.25% on the cash, so it would actually cost me money to hold a money market fund. Even after reading this thread, I'm not sure there are any viable alternatives on more expensive platforms although I've not fully investigated ETFs.

Anyway, thank you for the interesting thread!

Whilst accepting that pensions are intended as long-term investments, you describe one common reason for holding a large amount of cash in a SIPP over a relatively short period. My reason is also valid. Neither situation is unusual and yet the majority of mainstream SIPP-providers have ignored this requirement. Their business models don't accommodate cash holdings over any time period.

As long as BOE base rate remains low. Then banks have no need to offer higher rates than this on overnight deposits from commercial organisations. There's no reason either for savers to receive a "positive" return for taking no risk. One has to think outside the box and look at alternative more esoteric investment vehicles to diversify income streams. Royalty , infrastructure, renewable and enviromental spring to mind. 

Sailtheworld

The crux of the matter is that cash has never really been a decent vehicle to match inflation. It's more obvious in a time of low rates because it makes it more stark that if you want to protect the nominal value of investments the price is inflation. Just a look around the savings board will show the lengths people go to just to try to minimise the cost of holding cash.

That said I'm surprised the SIPP companies are so very uncompetitive when it comes to cash holding because there seems to be some demand and I'm sure many people would change providers for just a sniff of interest. Maybe there's not much profit to be had from these potential customers?

Sailtheworld

Thrugelmir said:

DairyQueen said:

NedS said:

Thank you for this thread, I have read with interest.

I have been holding large amounts of cash in my SIPP for a while having taken some profits and whilst waiting for a market correction to redeploy. I'm with a popular platform that charges a reassuringly expensive platform fee of 0.45%, so money market funds are not particularly cost effective. For example, a money market fund that returns 0.6%, after the 0.45% platform fee only yields 0.15%, and I'm already earning around 0.25% on the cash, so it would actually cost me money to hold a money market fund. Even after reading this thread, I'm not sure there are any viable alternatives on more expensive platforms although I've not fully investigated ETFs.

Anyway, thank you for the interesting thread!

Whilst accepting that pensions are intended as long-term investments, you describe one common reason for holding a large amount of cash in a SIPP over a relatively short period. My reason is also valid. Neither situation is unusual and yet the majority of mainstream SIPP-providers have ignored this requirement. Their business models don't accommodate cash holdings over any time period.

One has to think outside the box and look at alternative more esoteric investment vehicles to diversify income streams. Royalty , infrastructure, renewable and enviromental spring to mind. 

People wishing to hold large amounts of cash in a pension aren't looking for a diversity of income streams. They're looking for  wealth preservation with no risk and, although this isn't really possible, I doubt the average cash investor would be the slightest bit interest in infrastructure etc. Hence the frenzy on the savings and investments board when someone finds a cash ISA paying 0.1% more interest.

Thrugelmir

Sailtheworld said:

Thrugelmir said:

DairyQueen said:

NedS said:

Thank you for this thread, I have read with interest.

I have been holding large amounts of cash in my SIPP for a while having taken some profits and whilst waiting for a market correction to redeploy. I'm with a popular platform that charges a reassuringly expensive platform fee of 0.45%, so money market funds are not particularly cost effective. For example, a money market fund that returns 0.6%, after the 0.45% platform fee only yields 0.15%, and I'm already earning around 0.25% on the cash, so it would actually cost me money to hold a money market fund. Even after reading this thread, I'm not sure there are any viable alternatives on more expensive platforms although I've not fully investigated ETFs.

Anyway, thank you for the interesting thread!

Whilst accepting that pensions are intended as long-term investments, you describe one common reason for holding a large amount of cash in a SIPP over a relatively short period. My reason is also valid. Neither situation is unusual and yet the majority of mainstream SIPP-providers have ignored this requirement. Their business models don't accommodate cash holdings over any time period.

One has to think outside the box and look at alternative more esoteric investment vehicles to diversify income streams. Royalty , infrastructure, renewable and enviromental spring to mind. 

People wishing to hold large amounts of cash in a pension aren't looking for a diversity of income streams. They're looking for  wealth preservation with no risk and, although this isn't really possible, I doubt the average cash investor would be the slightest bit interest in infrastructure etc. Hence the frenzy on the savings and investments board when someone finds a cash ISA paying 0.1% more interest.

Either accept a degree of risk or watch your the value of your money eroded by inflation. Nothing more complex than that. 

[Deleted User]

”One has to think outside the box and look at alternative more esoteric investment vehicles to diversify income streams. Royalty , infrastructure, renewable and enviromental spring to mind.”

Not sure why you would call investments related to infrastructure, renewables and environment “esoteric”.  Any passive investor, who owns the “total market” funds will have invested in these sectors. 

What do you mean by Royalty? Buying patents? 

[Deleted User]

Sailtheworld said:

The crux of the matter is that cash has never really been a decent vehicle to match inflation. 

That said I'm surprised the SIPP companies are so very uncompetitive when it comes to cash holding 

During the times of deflation cash more than matches inflation. At times of deflation stocks tend to crash, so that’s important. If by “cash” you mean fixed interest then such investments do well when inflation is lower than expected. Happens quite often.

Brokers use cash holdings to make money; its basically a form of charging investors for the service. Banks with chequing accounts do the same thing. 

Audaxer

NedS said:

DairyQueen said:

NedS said:

Thank you for this thread, I have read with interest.

I have been holding large amounts of cash in my SIPP for a while having taken some profits and whilst waiting for a market correction to redeploy. I'm with a popular platform that charges a reassuringly expensive platform fee of 0.45%, so money market funds are not particularly cost effective. For example, a money market fund that returns 0.6%, after the 0.45% platform fee only yields 0.15%, and I'm already earning around 0.25% on the cash, so it would actually cost me money to hold a money market fund. Even after reading this thread, I'm not sure there are any viable alternatives on more expensive platforms although I've not fully investigated ETFs.

Anyway, thank you for the interesting thread!

And there lies the rub.

It's a struggle to inflation-proof unwrapped cash given retail rates but SIPP-wrapped cash is a guaranteed loser regardless of platform. Even Minerva wouldn't beat inflation once fees are included.

Whilst accepting that pensions are intended as long-term investments, you describe one common reason for holding a large amount of cash in a SIPP over a relatively short period. My reason is also valid. Neither situation is unusual and yet the majority of mainstream SIPP-providers have ignored this requirement. Their business models don't accommodate cash holdings over any time period.

The question mark over the pricing and function of bonds is now such that I am not alone in querying drawdown strategies that rely on a specific relationship between equities and bonds.

I appreciate that providing too decent a return on SIPP-wrapped cash may encourage people to invest far too cautiously in the accumulation phase but surely the bright sparks that design the business models could invent a product that alleviated this possibility whilst improving the situation for those whose cash is SIPP-trapped for short periods.

I have just begun using HL Active Savings. The rates offered are often close to or match those offered by the best-buys listed on this site, and with the big advantage of single site management. Mr DQ holds a small %age of his portfolio in an HL SIPP (insurance against a technical failure at t'other platform). If only Active Savings were available for SIPP cash. I know, I know. Different market, different legislation, different business model, but those kind of returns would encourage some of us to take a different view of HL's SIPP charges. 

I can but dream.

Yes, with you on everything you say.

In order to help alleviate the disappointment of not earning much on my cash, I firstly try to remember the first rule of investing - don't lose capital, and secondly I am fairly certain that at some point in the next year the market will be lower than it is now so I will look to redeploy that cash knowing I have saved (avoided a loss of) maybe 5% or 10% even if I may have missed out on 1% of interest during the wait. A good opportunity normally presents itself to those who are patient most years, and I doubt 2020 will be much different.

I've been thinking along these lines as I have some cash in my S&S ISA that I recently transferred from a Cash ISA that I have not yet invested. I'm thinking there might be a better entry point IF there is a market correction soon. However on the other hand I could lose out by missing out on dividends while I wait for a correction that may not come this year, so maybe I should just invest it now rather try to time the market?