Emergency fund within pension advice

richiereynolds

Hi folks, I plan to retire fairly soon and my pension will essentially be invested in two parts, one to facilitate growth and one as an "emergency fund" to call on when the growth part isn't performing well to guard against sequence of returns risk. I have no other savings.

I plan to use flexible drawdown so both parts need to stay within a pension as I don't want to attract extra income tax by taking out money I don't need to spend,

I can put the emergency fund part into a low fee money market fund which is fine but am wondering are there better options. E.g. if I was to buy a bond in the markets I could get a guaranteed return, are there typically funds that can replicate this within a pension? (Currently with aegon)

Many thanks for any advice, Richard.

OldScientist

A MMF will provide returns close to the base rate (less fees), i.e. currently 3.75% (this could go up or down in the future).

Short term gilt funds (e.g., IGL5) or global bond funds (e.g. Vanguard Global Short-Term Bond Index - lower yield, but more diversified), will have more price variation (up and down) than an MMF, but could provide slightly higher returns (the current yield to maturity  of IGL5 is about 3.7%, i.e. similar to the base rate).

Longer term bond funds will have much more price variation (and, in the long term, probably more return than the MMF), so are unlikely to be suitable for an emergency fund.

Individual gilts will provide a known cash flow (not necessarily a known return) but can also vary in price as yields change.

MK62

It depends on your definition of emergency fund........within a pension, it's not instantly accessible, so you might need your credit card to cover any immediate emergency demands (assuming that's a payment option for the emergency in question)

Outside the pension, you could use an easy access cash ISA, or even a standard easy access account (depending on your income, there may be no tax to pay on any interest).

Qyburn

It's my understanding, possibly incorrect, that an individual bond or gilt only gives a guaranteed return if held until its maturity date.

Albermarle

 if I was to buy a bond in the markets I could get a guaranteed return,

'Bond' can mean many things. Can you clarify what type you are thinking about ?

richiereynolds

Yes, sorry my calling it an "emergency fund" is a poor description. It's really a safer investment to drawdown on when my growth investments (stocks) aren't doing well.

And I was talking about something like a gilt when I mentioned "bond".

I think @OldScientist pretty much answered my question really. If I want something to guard against inflation I'm likely not going to do a lot better than a money market fund without adding risk and volatility.

I suppose something that always goes up when stocks are down would be nice but that doesn't really seem to exist anymore given Trump managed to send fixed income and stocks down together recently!