Alternative To Holding Cash in SIPP?

TCA

The thread title is probably self-explanatory but I'm looking for suggestions (and wondering what others do), should they wish to hold something akin to cash within their pension wrapper, but with an element of inflation proofing or very low risk? The minimum aim being to avoid cash being eroded by inflation. Although not quite my situation, let's say it's an investor who has accumulated enough wealth for retirement so doesn't need to take on any (or much) risk after he reaches the magic number. We'll exclude annuities at this stage. Thanks in advance.         

AnotherJoe

Take it out as part of the 25% TFLS and hold it elsewhere?

TCA

AnotherJoe said:

Take it out as part of the 25% TFLS and hold it elsewhere?

Thanks Joe. Let's assume that'll be done but what about the time period prior to being able to access the TFLS and the remaining 75% thereafter?

A_T

Maybe a cash fund like Fidelity Cash - but if you're paying a platform fee to hold it that will probably use up any gains. Otherwise perhaps a short-term sterling investment grade bond fund or one that is hedged to the pound - but these will have some risk attached to them.

TCA

Thanks A_T. Yes, platform charges come into focus when looking at the likes of Fidelity Cash and other short-term money market type of funds, which in some recent years wouldn't have made enough to cover the platform fees, let alone inflation. An ETF alternative might help (given the capped Fidelity charges) if there was such a thing? 

A_T

Maybe the ETF IBTG (iShares $ Treasury Bond 1-3yr UCITS ETF GBP Hedged)

TCA

Thanks. I'll check it out.

dont_look_now

You could consider sterling investment-grade corporate bond ETFs, if you want to push for a little more yield. And go for an ETF holding relatively short-term bonds, to keep its price more stable (though a bit longer-term gives you more yield).

E.g. at the shortest-term, iShares £ Ultrashort Bond ETF (ERNS). Could estimate its likely return as the yield-to-maturity (0.58%) minus the OCF (0.09%) = 0.49%. The average maturity is only 1.16 years, so it's usually pretty stable in price (this March, it fell at most 2%, but things could get worse than that).

Or if 0.49% isn't enough yield for you, you could try: iShares £ Corp Bond 0-5yr ETF (IS15). Could estimate its return as the yield-to-maturity (1.40%) minus the OCF (0.20%) plus the securities lending return (0.01%) = 1.21%. But the average maturity is higher, at 2.70 years, so its price is more volatile.

Or there are even longer-term ETFs, but perhaps that's long enough for you?

All these bonds do have some credit risk, being corporate bonds, not gilts. My naive method of estimating the returns doesn't allow for losses from defaults or downgrades.

quirkydeptless

I've scraped the internet trying to answer this one myself, but with vaprous returns, the cash alternatives (after platform fees) seem to be too much like profitless risk.

However I had compiled the following list of mentioned funds and ETFs from various threads I've seen asking this question.

Vanguard Global Short-Term Bond Index
Royal London Short Duration Credit
Royal London Short Duration Gilts
Royal London Enhanced Cash Plus
Royal London Cash Plus
Fidelity Cash

IS15 iShares plc Sterling Corporate Bond 0-5Yr UCITS
GLTS SSGA SPDR ETFs Europe I plc Barclays 1-5 Year Gilt
IGLS iShares III plc FTSE Gilts UK 0-5
CSH2 Lyxor Index Fund SICAV Smart Cash
IBTG iShares USD Tres 1-3YR UCITS GBP HDG
JGST JPMorgan Funds ETFs (Ireland) ICAV GBP Ultra-Short Income UCITS
ERNS iShares IV plc GBP Ultrashort Bond UCITS
TI5G IShares II Plc USD TIPS 0-5 ETF GBP Hdg
GIL5 Multi Units Luxembourg Lyxor FTSE Actuaries UK Gilts 0-5Y

I don't use any of these myself and I'm not aware of anyone actually using any of these to solve this conundrum

TCA

dont_look_now said:

You could consider sterling investment-grade corporate bond ETFs.

Thanks. I'll dig deeper into the risk factor of these and check out some of the longer-term options while I'm at it. My gut feeling was that corporate bonds were maybe a bit too risky but I'll review in a bit more detail.   

TCA

quirkydeptless said:

However I had compiled the following list of mentioned funds and ETFs from various threads I've seen asking this question.

Cheers for the list. I'll also check these out.