Best place for cash in SIPP

Aged

This may sound like a naive question, but here goes anyway. I have cash in my retirement account both in a short term money market fund, and as uninvested cash. Pros and cons of both options?

PS I believe the rate paid by the platform is 3.38%

Doctor_Who

You'll get closer to 5% in a STMMF (assuming it tracks SONIA), but there will be a fee to hold the fund and transaction costs to buy/sell. If the money is going to remain in the SIPP for some time (few months to a couple of years) I would be putting it in the STMMF. To be honest, unless you have a very large sum in cash, either option is going to give similar returns with very low volatility.

Aged

Doctor_Who said:

You'll get closer to 5% in a STMMF (assuming it tracks SONIA), but there will be a fee to hold the fund and transaction costs to buy/sell. If the money is going to remain in the SIPP for some time (few months to a couple of years) I would be putting it in the STMMF. To be honest, unless you have a very large sum in cash, either option is going to give similar returns with very low volatility.

There is a large sum in cash, which is why I feel the need to take some action. Most of it is sitting uninvested at present, with another roughly £20K in a (not very highly regarded) STMM fund. It's there for the long term, or at least until I feel confident enough to invest it elsewhere (which may never happen).

Doctor_Who

Aged said:

Doctor_Who said:

You'll get closer to 5% in a STMMF (assuming it tracks SONIA), but there will be a fee to hold the fund and transaction costs to buy/sell. If the money is going to remain in the SIPP for some time (few months to a couple of years) I would be putting it in the STMMF. To be honest, unless you have a very large sum in cash, either option is going to give similar returns with very low volatility.

There is a large sum in cash, which is why I feel the need to take some action. Most of it is sitting uninvested at present, with another roughly £20K in a (not very highly regarded) STMM fund. It's there for the long term, or at least until I feel confident enough to invest it elsewhere.

Are you in the accumulation phase or de-accumulation phase with your pension? I hold some cash in a STMMF in my SIPP, but the reason is that I will be withdrawing this money in the next 2-3 years.

Aged

Doctor_Who said:

Are you in the accumulation phase or de-accumulation phase with your pension? I hold some cash in a STMMF in my SIPP, but the reason is that I will be withdrawing this money in the next 2-3 years.

My official retirement date is in 2 years time, but I have cash in ISAs etc which I intend to be my first port of call when I start to draw down, assuming that interest rates return to negligible levels by then!

aroominyork

Short dated gilts with high coupons, eg TY25, are yielding about 5.5%. 

Aged

aroominyork said:

Short dated gilts with high coupons, eg TY25, are yielding about 5.5%. 

Have been thinking that gilts might be a good option, but my current platform does not permit me to do so (hence my other recent thread about changing platforms, which seems extremely daunting!).

Stargunner

aroominyork said:

Short dated gilts with high coupons, eg TY25, are yielding about 5.5%. 

Can the yield change as interest rates change.or would it remain the same to maturity.

Doctor_Who

Stargunner said:

aroominyork said:

Short dated gilts with high coupons, eg TY25, are yielding about 5.5%. 

Can the yield change as interest rates change.or would it remain the same to maturity.

The coupon and redemption date are fixed. TY25 has a coupon of 3.5% and redemption date of 22-10-2025. The yield quoted is dependent on the purchase price and that you hold to maturity. 

https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

Doctor_Who

Aged said:

Doctor_Who said:

Are you in the accumulation phase or de-accumulation phase with your pension? I hold some cash in a STMMF in my SIPP, but the reason is that I will be withdrawing this money in the next 2-3 years.

My official retirement date is in 2 years time, but I have cash in ISAs etc which I intend to be my first port of call when I start to draw down, assuming that interest rates return to negligible levels by then!

You really need a plan of when you will require the pension money and then invest accordingly and to your appetite for risk, which seems very low. Only you know your circumstances, what income you require and what other savings/investments you have.

You said in your second post that the money was 'there for the longterm', this would typically mean being invested in equities and bonds, not cash. There has been quite a few posts on the Pensions board from people wanting to 'de-risk' their pension to cash, you might want to read some of them and the responses.

Stargunner

Doctor_Who said:

Stargunner said:

aroominyork said:

Short dated gilts with high coupons, eg TY25, are yielding about 5.5%. 

Can the yield change as interest rates change.or would it remain the same to maturity.

The coupon and redemption date are fixed. TY25 has a coupon of 3.5% and redemption date of 22-10-2025. The yield quoted is dependent on the purchase price and that you hold to maturity. 

https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

Just run it through the bond yield calculator 

If the bond was purchased at a clean price of 95.87 on 14-Jul-2023 and held until the maturity date of 22-Oct-2025 the expected return would be 5.454% per annum.

The bond will pay two coupons per year on the 22 Apriland 22 October.

On the maturity date of 22-Oct-2025 the final coupon payment will be made and each bond will be redeemed at the face (par) value of 100.

Yield to Maturity

5.454%

Time To Maturity

2 years 100 days

Next Payment

99 days

22-Oct-23

Accrued Interest (for 22-Oct-23 coupon)

83 days

£0.794 per £100