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    • laser707
    • By laser707 10th Feb 17, 7:51 PM
    • 4Posts
    • 1Thanks
    laser707
    Holding cash in pension fund
    • #1
    • 10th Feb 17, 7:51 PM
    Holding cash in pension fund 10th Feb 17 at 7:51 PM
    What is the best way of holding cash in a SIPP? I have a HL SIPP and my contributions over the last year are being held as cash as I think funds are currently to high. I have seen various cash type funds but from my understanding current returns are much lower than the annual cost of the funds so I would be getting a negative return holding them.

    Are there any better and safe alternatives to holding cash in a SIPP?

    Thanks
Page 2
    • gmcarthu
    • By gmcarthu 19th Jan 18, 1:50 PM
    • 6 Posts
    • 0 Thanks
    gmcarthu
    Thanks for the replies so far guys.

    I have of course asked my advisor to respond and in fact I have my annual review next week and we will discuss it then. I have a low-medium risk profile and would expect to hold some cash at times, I just cannot get my head round why the return is zero - not close to zero, but specifically zero, so that seems to me a conscious decision and not subject to market rates !!

    Is it in a cash account or an actual cash deposit? - I don't know the answer, on my pot summary it just says 'Capital account balance'.
    What is the differentiation between the two types ?
    • wjr4
    • By wjr4 19th Jan 18, 2:32 PM
    • 438 Posts
    • 283 Thanks
    wjr4
    Thanks for the replies so far guys.

    I have of course asked my advisor to respond and in fact I have my annual review next week and we will discuss it then. I have a low-medium risk profile and would expect to hold some cash at times, I just cannot get my head round why the return is zero - not close to zero, but specifically zero, so that seems to me a conscious decision and not subject to market rates !!

    Is it in a cash account or an actual cash deposit? - I don't know the answer, on my pot summary it just says 'Capital account balance'.
    What is the differentiation between the two types ?
    Originally posted by gmcarthu
    Some cash accounts within a SIPP/platform do not pay interest at all.
    I am an Independent Financial Adviser (IFA). Any posts on here are for information and discussion purposes only and should not be seen as financial advice.
    • gmcarthu
    • By gmcarthu 19th Jan 18, 2:59 PM
    • 6 Posts
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    gmcarthu
    But why would that be the case - I simply cannot get my head round this zero return on cash, guess I need to wait for my advisor to come back to me after they have spoken with the fund manager for an explanation.


    Thanks to all so far.
    • dunstonh
    • By dunstonh 19th Jan 18, 3:01 PM
    • 95,885 Posts
    • 63,614 Thanks
    dunstonh
    I just cannot get my head round why the return is zero - not close to zero, but specifically zero,so that seems to me a conscious decision and not subject to market rates !!
    if it's in the platform account it will be as there is so little scope for returns when the base rate is 0.5%. As mentioned, the platform does not have the ability to lend your money like a bank can. It can only use other cash-like instruments with no tie-in. So, you are talking little or no margin when base rate is so low.

    Some platforms pay base rate. Some platforms pay nothing. You generally find the ones that pay nothing have lower charges than the ones that pay something.

    They are not meant for long term holdings. They are short term (as in less than 3-5 years) money. Typically a float to pay charges, receive rebates, tax, cover withdrawals, have dividends paid to etc. I tend to refloat the cash account at each annual review to the required level. They are also used by people wanting to exit an asset/fund but not yet decided on what to replace it with yet. Again, a short term home.

    You should never think of these as a viable replacement for investments or being suitable for savings.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • gmcarthu
    • By gmcarthu 19th Jan 18, 3:23 PM
    • 6 Posts
    • 0 Thanks
    gmcarthu
    Thanks for the very clear reply dunstonh.

    I don't think of cash as an investment vehicle, especially at zero and that's probably why I'm bringing it up and will need to amend my risk profile - I just think having 80K in cash is far too high for my circumstances, where I am not yet taking any pension and probably won't need to for another 3 years or so.


    Thanks again
    • soulsaver
    • By soulsaver 19th Jan 18, 4:50 PM
    • 2,122 Posts
    • 969 Thanks
    soulsaver
    You do what allows you to sleep at night...

    HL charges are too high for when you (re)invest amounts of cash that would attract meaningful interest IMHO.

    IWebb I believe pays 0.5%; not a lot you say?

    No, but if you end up with 100k on the sidelines for a year it would be 500 you wouldn't get with Hl, nor anywhere else SIPP wise AFAIK... & pays for a modest week in the sun...

    And if you decide to go 'all in' their charges are someway less than H-L's
    • OldMusicGuy
    • By OldMusicGuy 19th Jan 18, 5:26 PM
    • 620 Posts
    • 1,302 Thanks
    OldMusicGuy
    Cash does not sit at zero in an HL Vantage SIPP. It can attract interest rates as high as 0.2%! They pay interest on cash balances starting at .05% and then it goes up to a max of .2%. The important thing to remember is there is no platform charge for holding cash.

    HL is not a bank. Their goal is to get you to use their platform to invest in things. And if you want your money to grow, you should be investing. However, they do occasionally offer fixed interest deals (there haven't been any in the last few years afaik....).

    Like soulsaver says, you need an investment strategy that lets you sleep at night and meets your long term goals. I have a lot more cash than you right now in my SIPP, but I have plenty invested that will meet my long term goals. I could earn more by making my money work harder, but I don't need to and my approach suits my risk profile.
    • drphila
    • By drphila 19th Jan 18, 7:23 PM
    • 100 Posts
    • 36 Thanks
    drphila
    If you are going to have cash sitting in a SIPP long-term (>1year) there are SIPP deposit accounts that will pay better interest ( eg Close Brothers)
    • soulsaver
    • By soulsaver 20th Jan 18, 12:47 AM
    • 2,122 Posts
    • 969 Thanks
    soulsaver
    If you are going to have cash sitting in a SIPP long-term (>1year) there are SIPP deposit accounts that will pay better interest ( eg Close Brothers)
    Originally posted by drphila
    Got a link?
    If you're waiting for the 'right circumstances', a fixed ac is useless.
    • grey gym sock
    • By grey gym sock 20th Jan 18, 1:49 AM
    • 4,444 Posts
    • 3,997 Thanks
    grey gym sock
    investment platforms usually deposit any cash you're holding in a third-party bank. the bank will be paying some interest on this cash to the platform (which they retain), which is part of the reason that you get so little interest (sometimes, none at all).

    the interest rates they're getting are not very high, however - not as much as you'd get by shopping around for instant access accounts in your own name. e.g. if you look in HL's own accounts, i think the revenue they retain from cash held on their platform is a bit under 0.5%.

    this is not a "scam", but i would argue that this revenue should be better disclosed to customers of platforms.
    • gmcarthu
    • By gmcarthu 20th Jan 18, 8:49 AM
    • 6 Posts
    • 0 Thanks
    gmcarthu
    I would argue that if these investment platforms are indeed getting 0.5% on my and everyone else's cash, even at 0.5% as grey gym sock says, then it should be included into my portfolio surely ?

    0.5% of everyone's cash will add up to a really tidy sum for them !!


    Thanks to all
    • Thrugelmir
    • By Thrugelmir 20th Jan 18, 9:37 AM
    • 61,103 Posts
    • 54,322 Thanks
    Thrugelmir
    I would argue that if these investment platforms are indeed getting 0.5% on my and everyone else's cash, even at 0.5% as grey gym sock says, then it should be included into my portfolio surely ?
    Originally posted by gmcarthu
    Apportioning the interest between individual accounts would be administratively expensive. Buy shares in your fund manager as they are the ones benefitting. More so as interest rates progressively rise.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • caveman38
    • By caveman38 20th Jan 18, 9:40 AM
    • 909 Posts
    • 296 Thanks
    caveman38
    My wife has a SIPP with Liberty. She too chose to keep the money in cash, as she only wanted it running for 4 years in which time she'd accumulate 50K (of which ten would be from the tax man).
    Liberty keep the money in a Metro Bank nominee account which pays 0.3% and Liberty's fees are 210 per year.
    Originally she had the money in the Metro Bank 2 year Fixed Rate account which paid a lot more. Unfortunately the rules changed and the money now has to be invested in an account which has a break clause and the only ones that fulfil that are Instant Access ones.
    Obviously she could change to HL where she would only earn 0.05% but save on their fees which are fee free for cash deposits. This is something she is considering
    • OldMusicGuy
    • By OldMusicGuy 20th Jan 18, 9:45 AM
    • 620 Posts
    • 1,302 Thanks
    OldMusicGuy
    If you are going to have cash sitting in a SIPP long-term (>1year) there are SIPP deposit accounts that will pay better interest ( eg Close Brothers)
    Originally posted by drphila
    Interesting, thanks for that. Close Brothers is here https://www.closesavings.co.uk/sapphire-sipp-fixed-term-deposits.

    However, I found a post on another forum that HL won't allow this (I haven't checked with them).
    • caveman38
    • By caveman38 20th Jan 18, 9:58 AM
    • 909 Posts
    • 296 Thanks
    caveman38
    If you are going to have cash sitting in a SIPP long-term (>1year) there are SIPP deposit accounts that will pay better interest ( eg Close Brothers)
    Originally posted by drphila

    Thanks too for the info. But do those accounts have the break clause that - apparently - is now law for cash held in SIPP accounts. Would any SIPP provider be allowed to use them or can they interpret the rules differently.
    When I spoke quickly to HL last week (for my wife) they seemed aware of these rules too.


    This was discussed http://forums.moneysavingexpert.com/showthread.php?t=5419554
    Last edited by caveman38; 20-01-2018 at 10:07 AM.
    • IanManc
    • By IanManc 20th Jan 18, 11:25 AM
    • 721 Posts
    • 1,307 Thanks
    IanManc
    IWebb I believe pays 0.5%; not a lot you say?
    Originally posted by soulsaver
    Yes, IWEB pay base rate interest on cash balances.

    I think anyone would say that's not a lot when CPI inflation is running at 3% and RPI at 4.1%, because you're losing the value of your pension pot.

    That's why it is better not to keep large sums in cash in SIPPs unless you're going to be needing the cash in a foreseeable timescale and don't want the risk of the value of investments moving against you temporarily in that time.
    • grey gym sock
    • By grey gym sock 20th Jan 18, 6:02 PM
    • 4,444 Posts
    • 3,997 Thanks
    grey gym sock
    I would argue that if these investment platforms are indeed getting 0.5% on my and everyone else's cash, even at 0.5% as grey gym sock says, then it should be included into my portfolio surely ?
    Originally posted by gmcarthu
    we all want to pay lower charges, but platforms need to charge something, or they won't survive.

    you're effectively asking for them to have no charges for cash. what's the logic for that? they all have charges for shares and funds (either holding charges, or transaction charges, or both). why should cash be different? if they can't charge for cash, they might well just put up their other charges.

    in fact, platforms are making much less money from cash than they used to, because of lower interest rates. and i'm pretty sure they are trying to make that up from other charges. i think that's why it's becoming harder to find accounts where you can hold shares with no fixed or minimum quarterly/annual charges.

    i do think that platforms' revenue from cash should be properly disclosed, however. they used to receive undisclosed revenue from fund managers for funds held on the platform, and were forced (by RDR2) to move to explicit charges for funds instead. i think they should be forced to do something similar for cash. e.g. to tell you that the bank is paying 0.5% total interest, and the platform is charging 0.4% for holding cash, so you're only getting a net 0.1%.

    Apportioning the interest between individual accounts would be administratively expensive. Buy shares in your fund manager as they are the ones benefitting. More so as interest rates progressively rise.
    Originally posted by Thrugelmir
    surely they already have systems for paying interest to client accounts. even if some of them have set the interest rate to 0% recently.
    • Bravepants
    • By Bravepants 12th Feb 18, 11:36 PM
    • 497 Posts
    • 597 Thanks
    Bravepants
    I'm in the process of moving my AVC to a SIPP, valued at 80k or so in which I plan to hold it all in cash for 5 years. It will be drawndown from age 55 until age 60, and emptied at a rate equivalent to the basic tax allowance and 25% tax free.
    The money I normally pay into my AVC every month from salary will now go towards Added Pension.

    I'm not bothered about not earning interest, as it has already made me 20% to 40% by simply paying it in. This fund is my key to retiring at 55 so I don't want to take any risks with it. I have an ISA for that.

    This shift to cash in my SIPP is Phase 1 of my 5 year pre-retirement plan.
    Phase 2 is buying added pension.
    Last edited by Bravepants; 12-02-2018 at 11:39 PM.
    • username12345678
    • By username12345678 13th Feb 18, 1:08 AM
    • 240 Posts
    • 128 Thanks
    username12345678
    I'm holding cash in my SIPP as part of non-equity holdings and it is there to be used when rebalancing my portfolio to keep my asset allocations in line.

    If this was 20 or 30 years ago, when bonds where yielding meaningful amounts, then I would have little (if any) cash but i'm not at all convinced that current government bond prices/yields provide the stability i'm looking for to counteract the potential volatility of equities.

    So I don't think it is wrong to hold cash if it is there for a rebalancing reason, rather than cash being there because an investor wants to try and time the market with it.

    Happy to be educated on the subject though.
    • Filo25
    • By Filo25 11th Apr 18, 10:26 PM
    • 1,735 Posts
    • 2,559 Thanks
    Filo25
    Just giving this one a bit of a bump, as I was looking at my SIPP performance recently and really starting to question whether I would just be better off moving my bond holdings into cash, am I mad?

    As volatility has picked up in the market, bond funds don't generally seem to have benefited from a flight to quality in most cases, most bond funds have taken a hit, probably not true of short dated government bonds but the return on them is so small that it will be eaten up by management and platform fees anyway, so I can't see an economic case to hold them at present.

    My concern at present is that bonds have lost the supposed historical benefit of moving counter to equity movements in a correction, and their only real diversification benefit looks to be to fall slower in any significant correction, rather than to help offset it.

    If that rather bearish view of bonds prevails for the next few quarters is there any reason I shouldn't just be in cash, and at least avoiding platform charges.

    Obviously things will change as rates rise so at least short dated government bonds may become economically viable investments again, but this really doesn't feel like a great time to be holding bonds to me as an inexperienced investor, I would welcome any thoughts from anyone on whether I am missing something!
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