Updated: April 08, 2024
Holding Cash in a SIPP
While SIPPs usually act as an umbrella for a range of investments, there may be times when it’s useful to hold some cash in your SIPP. Read more about whether it’s a good option for you.
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Self-invested personal pensions, commonly known as SIPPs, offer a huge amount of flexibility and freedom when it comes to how you choose to invest, so it might seem odd that you would consider holding cash in a SIPP when there are so many other ways to invest.
While keeping cash in your SIPP may not be your most profitable long term investment, there are certainly some benefits, so in this article we’ll look at the advantages, the interest rates you can expect and how a pensions advisor can help you make the right choices.
Can you hold cash in a SIPP?
Yes you can. Flexibility is key, so alongside the usual options like stocks and shares, investment funds, unit trusts and commercial property, you also have the option to keep cash within your SIPP wrapper.
However, just because it’s possible, doesn’t mean that keeping cash in a SIPP is always a good idea, particularly in the current economic climate where interest rates aren’t close to keeping up with inflation. There are certainly times though where cash investing can make sense within a SIPP.
The benefits of this
While returns on cash investments are generally low, cash can still be a useful part of your SIPP, depending on what your plans are for your portfolio.
Having some cash in reserve as part of your SIPP can be a good way to increase liquidity and give you the opportunity to respond quickly to investment opportunities when they arise.
For example, if you wanted to purchase commercial property, having cash assets allows you to do that in a short time frame, without having to sell other investments, potentially at a loss if markets aren’t in your favour.
Any investor knows that the financial markets and the value of assets can go up as well as down, but if you’re worried about the current economic volatility and want to keep some of your investments a little more secure, then cash could be a short-term solution.
If you have an investment that has been doing well, and want to cash in on your gains, switching them temporarily into cash while you decide how to reinvest them can also be a low risk option. Not only does this protect the profits you’ve made, but it also helps to maintain the balance in your portfolio.
However, as this strategy reduces the investment risk of your portfolio, this limits the growth potential of your SIPP, and there are sometimes charges applicable for issuing buying and selling instructions within your SIPP so it is important to consider your options carefully.
Although holding cash in your SIPP might initially feel like a wasted opportunity, as cash interest rates almost never keep pace with inflation, don’t forget that holding cash in a SIPP isn’t the same as simply putting cash into a savings account, as you’ll qualify for tax relief on your SIPP contributions, making your cash investment immediately worth more.
Under basic tax relief the government pays 20% of the amount you invest in your SIPP. Effectively this means that for every £100 you pay into a SIPP, the government tops it up to £125. Higher-rate and additional-rate taxpayers qualify for this same basic tax relief, but they can also claim back an additional 20% or 25% through their self-assessment tax returns. Tax relief is limited to your annual allowance (£40,000 as standard) or 100% of your gross income for the tax year, whichever is lower.
It is important to note that once you contribute funds into your SIPP, you will be unable to access these funds until you reach minimum pension age (currently 55, but this is increasing to 57 in April 2028).
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What interest rate to expect
It can be difficult to find and compare interest rates for cash in a SIPP as you might for mortgages, for example, or high street bank savings accounts, and this can make it hard to know if you’re getting the best rate possible on your cash SIPP investments. One way to address this is to use an independent pensions expert – they’ll have a broader knowledge of the market and relationships with providers, so are well-equipped to research and compare rates on your behalf.
As well as rates, you’ll also need to factor in platform charges – the best SIPP cash interest rate could turn out to be deceptively expensive if the provider has higher fees. A pensions advisor can help you evaluate rates and terms to make sure you’re getting the best return on the cash in your SIPP.
How an advisor can help you decide if cash in a SIPP is suitable for you
Although SIPPs are designed for people who feel confident choosing and managing their own investments, it never hurts to have someone who can act as a sounding board and give you a fresh perspective. An independent pensions advisor is perfect for this as they will have an in-depth knowledge of the whole SIPPs market, be up to date with product and legislation changes, and potentially have access to providers or offers that you wouldn’t be able to find on your own.
When it comes to keeping cash in a SIPP, a pensions advisor can help you decide whether or not it’s a good idea for you, and help to find you the right place to invest your cash for the best returns. The advisors we work with offer a completely free pensions review, where they evaluate your entire portfolio and make recommendations based on your goals. Whether you choose to act on their advice is of course entirely up to you, so you really have nothing to lose.
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Which SIPP providers let you hold cash?
Some of the current SIPP providers known for a good range of investment options, including cash, include:
- Fidelity – Low service fees, save from as little at £20 per month, with thousands of shares and fund options. Fidelity has a 0% platform fee for cash.
- Freetrade – A very user friendly platform, with plenty of insights available and 3% interest on cash holdings up to £4,000.
- Interactive Investor – Charges a flat fee rather than a percentage, so good value for those with larger value portfolios or looking to grow quickly without seeing an increase in fees.
- AJ Bell – Good value fee structure and wide range of investment options. Awarded a five star rating by The Times.
The aim of a SIPP is to offer a wide range of investment options, so most good SIPP providers should include cash investments as part of that. The best SIPP provider for you will of course depend on your circumstances and what specific facilities you need from your SIPP – are you looking to keep cash in your SIPP short term for instance, while you wait for the right time for another opportunity, or are you looking for a provider who specialises in cash investments?
Think carefully about why exactly you want to keep cash in your SIPP, how much and for how long, and get expert advice if you’re not sure about the right course of action.
Get matched with an independent SIPPs expert
Cash may be one of the simplest assets, but that doesn’t mean that investing cash in a SIPP is always straightforward. Anyone can benefit from an expert take on their current and future SIPP plans, and as all of the independent advisors we work with offer a completely free and no obligation review service, it makes sense to take advantage of their expertise.
Give us a call now on 0808 189 0463 or make an online enquiry and we’ll assess your needs and match you with the advisor that’s best placed to help you. Our pensions expert matching service is completely free of charge too.
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FAQs
Cash in a SIPP is very safe, as it will be immune to the volatility that other, higher risk investments might experience.
The main risk with holding cash in a SIPP is that if the rate of inflation in combination with SIPP charges exceeds the interest rate you’re earning, the real spending power of the cash held in the SIPP will be eroded each year.
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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.
Tony Stevens
Finance Expert
About the author
Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.
Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.
