Options for holding large cash amounts in a SIPP

kingsleypne · 11 December 2018 at 12:15PM

I'm looking to build up the cash holding within my SIPP over time as I approach retirement to reduce risk by gradually reducing the amount invested in funds. I plan to buy an annuity with the funds. The value of the fund is approx. £500K, with currently about £75K in cash. My main aim is to protect the fund from falling rather than to grow it further.

I'm with Hargreaves Lansdown. I've ask them about how they allocate the cash in a SIPP to bank accounts and they tell me that it's possible that up to 35% of the cash in my SIPP could be held by a bank covered by a single UK bank licence. If I convert my entire SIPP to cash, that could mean as much as £175,000 held in a single bank - well beyond the £85,000 compensation limit. 15 years ago I wouldn't have thought twice about this but now I'm a little more wary!

Are there any other options for me to hold cash in a SIPP? I'd also be interested to know what others are doing when they want to reduce risk prior to taking an annuity - are you converting to cash or going down a different route?

whatsup7 · 11 December 2018 at 12:59PM

Could you transfer half to another sipp provider

Linton · 11 December 2018 at 1:00PM

Are you sure that you want an annuity with all the £500k? Annuities provide the best guarantees of income that you can get, but the rates are very low at the moment: a bit over 3% for an inflation linked annuity at 65. Also drawdown rather than an annuity should enable your family to inherit a much larger sum when you die - an annuity will probably leave nothing unless you pay for a spouses pension. It may be worthwhile only putting a part of your investments into an annuity and continue to invest the rest. One of the IFA contributors here could probably give you the figures but I believe the number of people choosing an annuity for retirement is relatively low.

Any money you intend to invest for the longer term post retirement should not be put into cash as it will steadily lose value because of inflation.

Other options than cash could include short duration bond funds and money market funds. Neither will produce any meaningful return.

For a pot of £500K I suggest you discuss your options with an IFA.

kingsleypne · 11 December 2018 at 1:27PM

Linton: thanks for your comment. The SIPP forms only part of my pension planning. I wouldn't be using all of it to buy an annuity - I would take the 25% cash free element out first. The rest would fund the annuity and would provide me with some guaranteed income. The 25% tax free element would be reinvested and together with other existing investments will stay invested and provide me with additional income.

kidmugsy · 11 December 2018 at 1:47PM

There are specialist SIPPs that give access to bank accounts that pay decent interest. (I don't know much about them; our SIPPs are too small for me to be tempted by anything other than mass market platforms.)

I think you are wise to consider potential problems with the security of banks.

Have you considered any other conservative investments e.g. funds or ETFs investing in short-dated bonds? Or ETFs for holding foreign currencies?

Or even ETCs for holding gold: those would be a diversification from equities that might prove useful.

Aretnap · 11 December 2018 at 1:50PM

If you plan to buy an annuity with the funds, converting them into cash is not necessarily the best option in terms of stability. True the headline figure for cash in your account will not fall (barring another banking crises and subject to FSCS protection etc), but the amount of annuity that you can buy with those funds - which is the important thing - may well fall (or rise) as annuity rates fluctuate.

I think the traditional advice for people approaching retirement was to transfer investments into long term gilts. This is because annuity rates are closely linked to the price of long term gilts - so if your pension is invested in gilts the headline value may go up and down a bit, but the amount of annuity you can buy with it should remain relatively constant. (This advice is now largely redundant as not many people buy annuities, but it should still be relevant to anyone intending to buy one).

I'd agree that given the amount of money involved, it's probably worth paying a little for some professional advice.

timodell · 11 December 2018 at 3:26PM

The following thread has some options for alternative SIPP providers who allow a full range of fixed rate deposit accounts - NB HL will pay a pittance (less than 0.5%) on cash you leave with them...

https://forums.moneysavingexpert.com/showthread.php?t=5923398

xylophone · 11 December 2018 at 6:06PM

as I approach retirement

Have you checked your state pension forecast?

https://www.gov.uk/check-state-pension

OldMusicGuy · 11 December 2018 at 6:22PM

Interesting. I am in a similar situation. Just retired, all my DC pot with HL. I have already moved significantly more than 85K to cash as a defensive move. I never thought about the 85K limit, yet I have been careful to spread our savings outside the SIPP around multiple bank accounts. Will have to get in touch with HL and find out what the situation is. I was thinking of moving some/all of the SIPP from HL, this might prompt a move.

Moving a chunk of your SIPP to cash is a good defensive strategy if you are risk averse IMO. However, buying an annuity is a bad idea if you are young (below 70 or older). Much better IMO to leave the money invested longer term in lower risk funds. My strategy is to keep a good chunk of the SIPP in cash, use UFPLS plus other savings before SP kicks in. I will probably then think about taking the tax free element at SP age.

I will stay invested with the rest until in the 70 to 75 age range and then most likely start annuitising the invested balance on a rolling basis. However, it does depend on how we fare through the next 10 to 15 years along with how the economy fares!

robber2 · 11 December 2018 at 10:38PM

might be worth considering an InvestAcc SIPP for cash account investments. Theres a good thread about this option here;

https://forums.moneysavingexpert.com/showthread.php?t=5887869&page=2

regards

Rob

goRt · 12 December 2018 at 9:57AM

iii always held cash spread across 12 banking institutions, I discovered yesterday on part of its PCLS release paperwork that this is no longer the case and its T&Cs have been updated.

I've asked for clarification when this happened and when I was advised as this wasn't the case in the summer of '18 when I started transferring a large sum to it for this very protection!

Options for holding large cash amounts in a SIPP

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