Temporarily converting SIPP into cash

[StevieG (Steve)]

Hi all. Sorry for the couple of new topics tonight, but hopefully this is an interesting one. Because I’m dead old, I have a valuable pension with Vanguard (invested in the usual retirement fund shizzle). Bearing in mind the potential 12-24 month recession we may face, I asked yesterday if I could convert into cash and if so would I get paid interest. The answer is yes, and 0.25% below base (so as of today, 1.5%). My pension obviously doesn’t help with immediate cash flow needs, so a temporary halt could be beneficial perhaps. I know the old adage about time in the market…. etc, and whilst I’m minded not to, just wondered if anyone else was considering the same.

[bitflip]

My opinion is that we should not get too enamoured with most rules of thumb - don’t fall in love with specific shares and don’t blindly accept adages like “don’t time the market” without thinking what that really means.

Your thoughts here on cash conversion are not necessarily a bad plan (also see What is going on today? - Megathread - #2410 by bitflip). As you approach retirement age you should change the proportions by which you allocate assets. So for example increasing the cash and bond aspect. If you have a company pension with some sort of “Lifestyle choice” then you will see that is exactly what is done, by your pension manager, for security purposes: over many years the proportions gradually and smoothly change. The rationale being that you don’t want a dramatic drop in pension value at retirement date because of Market turbulence.

You can cut your losses in a sustained drop in the market by pulling out. The risk you take is that you lose some of the gains on the way up. That is the call you make. And your retirement date should feed into that risk strategy. Also it matters whether we are talking ISA or pension here. Especially because you have to make a decision on how you want to take the pension (annuity, gradual sell off and so on and so forth).

[rehpot]

As @bitflip says, it’s important to change your allocations as you age. If you’re in one of Vanguard’s ‘target retirement’ funds, this will be done for you but you need to revisit it otherwise.

I’d suggest going to cash would likely be a bad idea with inflation as it is. When I approach retirement, I intend to add more bonds, equity income exposure and wealth preservation trusts such as CGT.

[Cameron]

Obviously I’d initially reiterate the point about attempting to time the market and note that other market participants have the same information as you regarding the upcoming recession but accepting you don’t share this view I’d ask yourself one thing:

What sort of recessionary environment are you looking at that makes holding cash preferable to bonds?

[weenie]

My intention is to stay in equities when I retire (with my SIPP) but have a cash buffer so I can draw on that, instead of selling when markets are bad. The bulk of my investments are in standard Vanguard ETFs, not the targetted retirement funds or lifestyle strategy funds.

I’m currently slowly building up on that cash by leaving the tax relief/reclaim univested while I continue to invest the actual cash I put in.

Sadly this cash won’t attract any interest with Freetrade’s SIPP but I’m ok with that.

[bitflip]

I think @rehpot makes a very important point about bonds, equity income etc.

Some people might want to consider having funds in an investment grade fixed income fund something like, only for illustration purposes, PIMCO GIS Global Investment Grade Credit Fund Institutional GBP (Hedged) Income, IE00B3BMD843:GBP summary - FT.com.

In a pension situation you might want to take advantage of the 25% tax free lump sum*** - and do the cash conversion for that** when the market is going up rather than when the market is going down. Yup. Cash considerations are important.

**Of course you might choose not to do cash conversion for that and instead do a variation on what @weenie says where you take cash from dividends. Another alternative: you might decide you will liquidate a certain % of capital every year etc. It depends on what you decide the goals are (and inheritance may play a role here too).

*** Tax laws do change. So dunno if this one hangs around for ever.