Can anybody advise on a disagreement with dh about my pension?

[ToastedBaconSandwich]

I have a flexi drawdown pension which is a mixture of cash and investments.
Most of the cash part is the 25% tax free lump sum, and dh is saying he thinks we need to withdraw this and put it in a high interest cash ISA, and keep the investments in long term.
I’m thinking leave everything where it is to see if the markets improve.
Which/what would you advise?

Your pension your choice but take advice from pension/investment experts

Well, the whole pot should increase, just the fact u can draw 25pct tax free now doesn't mean it will be the same size of pot in a few years time - the pot would probably grow - although it depends on market fluctuations.
If u don't need it, I would leave it where it is.

Unless you need the lump sum, why have you got it in cash? If you have kids or an IHT issue the tax free cash strategy is out of date.

How much are you talking OP as this really is totally outdated and not what we do with pensions now?

You need advice from an IFA who's a pension expert.

Can you invest the 25% within the pension wrapper or would you need to take it out in order to invest it? If you invest within the pension wrapper then I think the investment returns may be tax-advantaged compared to taking it out now.

also - are you already contributing to an ISA? If not, you might have the option to withdraw the 25% tax free and then invest £20k of it per year into an ISA, which would allow allow the best of both worlds: money is out of pension wrapper so accessible, yet further investment returns remain tax free.

One thing that is very clear is that keeping it in pure cash with no return is very unattractive. At the least, keep it in a short term, low risk bond fund instead in order to get returns on the order of 4%.

Cash seems to be a good thing at the moment - my pension doesn't seem to have any funds that are making a positive return - at leas with cash you can't lose anything other than inflation. And aren't bonds really suffering because interest rates have gone up?

also - are you already contributing to an ISA? If not, you might have the option to withdraw the 25% tax free and then invest £20k of it per year into an ISA, which would allow allow the best of both worlds: money is out of pension wrapper so accessible, yet further investment returns remain tax free

except that’s not how pensions work now and it certainly doesn’t take note of other legislation. Honestly, Op get some qualified advice instead of ill informed randoms on the internet.

Yes but as the real yields rise the results will being to improve as the new bonds feed into the system.

Best time to get new cash in. However depending on your age, equity is usually the better option

If it was me I would have none of it in cash inside the pension - it would all be invested.

Your husband does have a point though that putting the cash into a good savings account returning say 4.5% would be a guaranteed return so not to be sniffed at.

As long as you don’t take more than your 25% TFLS you could probably always put it back in the pension in n years time if you can avoid the recycling rules, or into a new pension in your husbands name if you wanted.

I will be taking a TFLS from my pension and putting some of it into a SIPP for my other half - and the government will immediately add 25% (or to be exact I will pay for things with my TFLS and my other half can then put big chunks of her salary into her SIPP for the same net result).

Clearly having cash in savings is the less risk less reward approach but markets improving will not help the cash in your pension at all.

It is very important to distinguish between the underlying investment, and the account type in which it is held. Account types include ISA,Pension (for instance SIPP or employer sponsored), and taxable account.

Within a pension, unless the employer / plan sponsor gives no control over how it is invested, you can normally choose what proportion to hold in cash, bonds, stocks, as well as what kind of bonds or stocks. So it should not be necessary to take money out of the pension in order to choose lower risk investments. For a person wanting to hold cash or something quite similar to cash in terms of interest rate risk exposure, it should be possible to buy a short-term bond fund. That way the benefits of the pension wrapper are retained while the underlying investment profile is shifted.

Each account type has pros and cons.

With a taxable account, the funding is with after-tax money and all gains and income are also taxed upon realisation, but there is the widest choice of investments available and it is usually possible to get the lowest fees.

With an ISA, the funding is with after-tax money so there is no tax benefit at the point of investing, but all future income and gains within the ISA are then tax free, and the principal has of course already been taxed. Money can usually be taken out any time it is needed, but it cannot be put back in. There is a limit to how much can go in each year so it needs to be built up over time, and there are usually more limits on choice and higher fees compared to a taxable account.

With a pension, the funding is with pre-tax money so there is an immediate tax benefit upon investing. Income and gains within the pension are tax-free. However, when money is taken out in the future, it gets taxed as ordinary income (except for the 25% TFLS). So capital gains within a pension are taxed more heavily than gains invested in an ISA or even in a taxable account. There are also more limits on choice and higher fees compared to a taxable account.

Despite the limits mention, it should be possible to own any of bonds, stocks or cash within any account type.

So capital gains within a pension are taxed more heavily than gains invested in an ISA or even in a taxable account. There are also more limits on choice and higher fees compared to a taxable account

This isn’t a wholly accurate picture as it’s not only the gains that bring benefit. As one can’t isolate gains and the principle investment is far more material, this misleads. At standard CGT and dividend rates a pension beats a GIA as it has a 15% tax burden on gains, but as I say the gains aren’t in isolation.

Oh and a pension has no IGT - that’s a 40%!saving for many

IHT! .. fat fingers

Unless you are at risk of breaching lifetime allowance, let the investments grow inside the sipp, as they will be excluded from IHT.

Generally, the tax free lump sum is only best to be taken when you actually need it. Either as a pay the mortgage, or lifetime experience amoubt, otherwise, leave it within the SIPP to continue to grow. When you then start on the drawdown, you can benefit from your marginal tax rate allowances plus 25% of what you crystallise monthly, so you can benefit from the tax free element, as well as letting it all grow too…. Again keep an eye out for the lifetime allowance issue.

Cash isn’t a great option, right now, never is. It was wise to move it into cash when the markets peaked, but playing the markets at that game can be risky. Within the sipp wrapper, you should be able to put it into a fund that is low risk but gives you a return. This can include cash funds which are returning about 1-2%pa right now, on overnight deposits. Better than sitting idle in actual cash….

S&P500 trackers look attractive right now, but i’d stay in cash funds right now, for maybe another 6 months to see where things go, as many are still predicting more decline in equities….