Holding cash in a personal pension

masonic

pdiddy64 said:

Are you aware that it is very difficult to invest in individual bonds within low cost SIPPS? Account holders are shepherded into buying bond funds. If you look through all of the investment literature all it talks about is bond funds. I don't think I have ever read an article about an individual company bond. The same applies to gilts. The point is identical to the issue with cash. Individual investors in low cost SIPPs cannot access the good deals. This will change with time as investors become more astute and providers are forced to offer individual bonds - almost the opposite of what happened with mutual equity funds many years ago. Please can we leave bonds totally out of this as it just distracts from the point about cash held in SIPPs.

There are low cost SIPP providers who allow you to buy individual bonds, for example Hargreaves Lansdown and iWeb. As you mention later in your post that you hold a SIPP at iWeb, you can already access bonds paying a return of 4+%, so problem solved. SIPPs are by their nature investment accounts, so bonds are the natural risk free investment to hold within them.

On your other points, in brief (as this discussion has become superfluous), business bank accounts used by SIPP providers to hold client money are highly unlikely to be paying the BoE base rate as it rises back to 'normal' levels. They cannot use consumer savings accounts for this purpose. Several providers already do pass on interest that they receive. I do not mean by 'segregated' what you are suggesting, I mean the business has no recourse to the funds in the account (not that each client's money is separate - it isn't). I'd rather iWeb kept its costs down rather than introduce a custody fee like most of their rivals. I'm arguing for savers to continue having exclusive access to the best deals on cash, and against securitising this lending and making it available to asset managers - the costs associated with doing so, and demand, would drive down the rates on offer. In fact, what this would essentially represent is the bank issuing corporate bonds, which may have a good rate, but no FSCS protection if the bank goes bust.

masonic

Neversurrender said:

pdiddy64 said:

Masonic

Most of your arguments are contradictory and obviously made to distract the argument.

Your final point about bonds being a good deal really gives the game away! Most people would agree that bonds are one of the most risky investments of all at the moment (especially those with indexation or long duration).

SIPP providers generate a great deal of profit from ripping clients off with poor returns on cash, that is just a fact. Changing this would remove the distortion in the SIPP industry, not create a distortion elsewhere. 

The point about company pension schemes and the wider pension industry doing the same thing has some validity but it is not quite as bad there at all. For example, my workplace pension offers a guaranteed 7% equity based scheme. There are also many other schemes that are actually quite generous. Also, why should the fact that this is an industry wide con prevent us from reining in this poor behaviour in the SIPP area? We have to start somewhere.

Maybe many of us will not stand to gain much from any change - but at least we could be helping those who follow in years to come.

Please tell me if you think I am being naive or just wrong.

So are bonds in mixed asset funds like Vanguard Lifestrategy  etc.. also a bad deal, or is it just stand alone bond funds?

They were a bad deal. It's arguable whether they are still a bad deal if buying today.

Neversurrender

masonic said:

Neversurrender said:

pdiddy64 said:

Masonic

Most of your arguments are contradictory and obviously made to distract the argument.

Your final point about bonds being a good deal really gives the game away! Most people would agree that bonds are one of the most risky investments of all at the moment (especially those with indexation or long duration).

SIPP providers generate a great deal of profit from ripping clients off with poor returns on cash, that is just a fact. Changing this would remove the distortion in the SIPP industry, not create a distortion elsewhere. 

The point about company pension schemes and the wider pension industry doing the same thing has some validity but it is not quite as bad there at all. For example, my workplace pension offers a guaranteed 7% equity based scheme. There are also many other schemes that are actually quite generous. Also, why should the fact that this is an industry wide con prevent us from reining in this poor behaviour in the SIPP area? We have to start somewhere.

Maybe many of us will not stand to gain much from any change - but at least we could be helping those who follow in years to come.

Please tell me if you think I am being naive or just wrong.

So are bonds in mixed asset funds like Vanguard Lifestrategy  etc.. also a bad deal, or is it just stand alone bond funds?

They were a bad deal. It's arguable whether they are still a bad deal if buying today.

Thanks again for the info Masonic

Stargunner

I am considering buying some gilts to replace some of the cash that I am holding in an iweb isa. Looking at some of the gilts available on HL, if you buy some do you have to hold them to maturity date, or can you sell them at anytime like you can with shares. There is quite a variance in the coupon payment that they pay and also in their current valuations compared to the £100 that they originally started at, so how do you decide what ones are likely to be suitable to give you a positive return on your money.       

pdiddy64

The fact is that people are being ripped off with ridiculously low returns on cash held in SIPPs. Everything else is noise...

aroominyork

m_c_s said:

IGLT iShares Core UK Gilts UCITS ETF 10yr avg bond ytm=4.29%

IGLS iShares UK Gilts 0-5yr UCITS ETF very low risk ytm=4.13%

ERNS iShares £ Ultrashort Bond UCITS ETF mainly corporate bonds of less than 1yr duration ytm=3.57%

There will be some volatility in the fund price for the top two ETFs but 4+% return virtually guaranteed is something we have not had for many years.

Where does the data come from please? Morningstar shows YTM of IGLT as 2% https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P00007013&tab=3&InvestmentType=FE

masonic

Stargunner said:

I am considering buying some gilts to replace some of the cash that I am holding in an iweb isa. Looking at some of the gilts available on HL, if you buy some do you have to hold them to maturity date, or can you sell them at anytime like you can with shares. There is quite a variance in the coupon payment that they pay and also in their current valuations compared to the £100 that they originally started at, so how do you decide what ones are likely to be suitable to give you a positive return on your money.       

You can sell them at any time, but if you sell them prior to maturity your return would vary. As they approach maturity, their value to trend towards the face value of £100, but the further from maturity, the more variation is possible.

The easiest way to consider returns is to start with the yield curve for a guide: https://markets.ft.com/data/bonds

Individual bonds maturing around the same time will have a similar total return, even though their coupon may differ significantly. The return will just be composed of varying amounts of interest vs capital gain. Your return will depend on the price at the time you purchase, which will fluctuate from the chart linked above, which is currently based on yesterday's closing price. You'll also have some costs in the form of a trading fee. These shouldn't make a significant difference for a reasonable sized purchase. If you want to accurately calculate your return, then you'd need to set out all of the interest payments, and final £100 payment at maturity, then calculate the internal rate of return using a spreadsheet's XIRR function or similar.

masonic

pdiddy64 said:

The fact is that people are being ripped off with ridiculously low returns on cash held in SIPPs. Everything else is noise...

If that's your ideological belief, then I can understand why you view arguments against it and pragmatic solutions as unwelcome noise. I would remind you that you invited such comment when you wrote: "Does anyone have any proposed solutions or views?"

The thread starter was looking for practical solutions. Dismissing things that are achievable now to improve returns in a risk-free manner, apart from anything else, just isn't moneysaving. There's little to be achieved from demonising SIPP providers for not doing as you wish when there are clear reasons why this is impractical. Why not make the best of the situation as it is?

masonic

aroominyork said:

m_c_s said:

IGLT iShares Core UK Gilts UCITS ETF 10yr avg bond ytm=4.29%

IGLS iShares UK Gilts 0-5yr UCITS ETF very low risk ytm=4.13%

ERNS iShares £ Ultrashort Bond UCITS ETF mainly corporate bonds of less than 1yr duration ytm=3.57%

There will be some volatility in the fund price for the top two ETFs but 4+% return virtually guaranteed is something we have not had for many years.

Where does the data come from please? Morningstar shows YTM of IGLT as 2% https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P00007013&tab=3&InvestmentType=FE

Straight from the horse's mouth, https://www.ishares.com/uk/individual/en/products/251806/ishares-uk-gilts-ucits-etf

I'm not sure why Morningstar's data is so different, but the iShares YTM is consistent with the yield curve data in the link a couple of posts prior.

Alistair31

masonic said:

pdiddy64 said:

Are you aware that it is very difficult to invest in individual bonds within low cost SIPPS? Account holders are shepherded into buying bond funds. If you look through all of the investment literature all it talks about is bond funds. I don't think I have ever read an article about an individual company bond. The same applies to gilts. The point is identical to the issue with cash. Individual investors in low cost SIPPs cannot access the good deals. This will change with time as investors become more astute and providers are forced to offer individual bonds - almost the opposite of what happened with mutual equity funds many years ago. Please can we leave bonds totally out of this as it just distracts from the point about cash held in SIPPs.

There are low cost SIPP providers who allow you to buy individual bonds, for example Hargreaves Lansdown and iWeb. As you mention later in your post that you hold a SIPP at iWeb, you can already access bonds paying a return of 4+%, so problem solved..

For the life of me, I still cannot figure out how to do this (iweb)