Can I get a cash pension?

Background: 31, self employed (sole trader), income usually around £20-30k. £135k cash savings.

I want to start a pension to take advantage of not having to pay tax on the money I put into one. However I'd rather not have to deal with investing. Can I keep my pension in cash? Where will allow me to do that?
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  • NB m already putting 4k a year into a cash LISA
  • Drp8713
    Drp8713 Posts: 902
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    You can hold cash in a pension.

    It would be an awful idea though.

    The whole point of investing is to get a return above inflation, so your money grows over time.

    If it sat there in cash for 30 years getting no return, and lets say inflation was 3% (it was 3.3% over the last 30 years). Excluding compounding, 30 x 3% = 90%. So something that cost £10000, now costs £19000

    If you put that same £10k in the markets and got the average 5% after inflation return, after 30 years you would have the spending power of £44k.

    In one scenario you have half what you used to, in another more than four times more.

    You should go and see an IFA, it will make you much better off in the long run.
  • I thought the main benefit was the extra 20% you got from not paying tax on money put into a pension?

    I'm not seeing an IFA, in-person appointments and phone calls give me panic attacks.

    I just want something simple!
  • Aegis
    Aegis Posts: 5,688
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    I thought the main benefit was the extra 20% you got from not paying tax on money put into a pension?

    I'm not seeing an IFA, in-person appointments and phone calls give me panic attacks.

    I just want something simple!
    The tax relief helps, but it's certainly not the only reason to use a pension. Remember that the tax relief is less worthwhile in the very long run because the expectation is that you'll pay that same 20% tax on some 75% of the pension value during retirement. As such, the overall effect for a basic rate taxpayer is that you get 20% tax relief but pay 15% tax on the way back out. This only leaves 5%, which will be significant eroded by inflation if you leave it in cash.


    Far better to invest over the timescales you're talking about.
    I am a Chartered Financial Planner
    Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.
  • I want to start a pension to take advantage of not having to pay tax on the money I put into one.

    On the level of income you quote in the first post starting a pension will not make any difference whatsoever to your personal tax liability i.e. it will not save you any tax when it comes to your Self Assessment tax bill.

    But you would normally get a 25% uplift in your pension fund on whatever you contribute.

    So say you contribute £4,000 then this will become £5,000 in your pension fund when the pension company adds the basic rate tax relief.

    You have to declare this on your Self Assessment return but it won't change your tax bill if your taxable income is no £20-30k.
  • Bimbly
    Bimbly Posts: 481
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    As above, you're rather young to be putting cash into a pension. It will earn little to no interest and be eroded by inflation. You don't have to go guns blazing into risky investments, however. You can be a cautious investor.

    Maybe a Stakeholder pension would suit you. They generally have a default investment fund:
    https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/contract-based-schemes/stakeholder-pension-schemes

    Or a Vanguard target fund:
    https://monevator.com/vanguard-target-retirement-funds/

    Read up more about pensions for the self employed here:
    https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/self-employed-and-pensions

    You could possibly get a better scheme or one more targeted by getting financial advice, but these are simple and would at least get you started in saving into a pension.
  • Now I'm really confused. I thought putting a few thousand a year into a pension would reduce my tax bill because it would use up some of my taxable income? I usually pay a few thousand a year in tax.
  • No. Your income, as per your first post, is not enough for a personal pension or SIPP contribution to make any difference whatsoever to your personal Self Assessment bill.

    You benefit tax wise by the pension company (who get the money from HMRC) adding basic rate tax relief to the pension fund

    So you pay in say £4,000 and you end up with £5,000 in your pension fund. Basically £1,000 free money.

    But it will not change your Self Assessment bill.
  • Oh I see. So I pay tax on the money but then get it back in the pension account, rather than not paying out in the first place. Thanks.
  • Albermarle
    Albermarle Posts: 21,641
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    Oh I see. So I pay tax on the money but then get it back in the pension account, rather than not paying out in the first place. Thank
    Yes that is the general idea .
    For a simple pension try looking at the Standard Life website . How it works is well explained and they have an 'Easy ' option that means you only have a choice of one of four investment funds . Low risk; medium risk; higher risk etc .( high risk does not mean you will lose all your money but it will go up and down quite a lot but over a period of 10 years + you should see a good return)
    It's not the cheapest option available but an easy start for someone unfamiliar with investments /pensions etc .
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