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Should I cash in my Isa?

Is it better to sell everything at once or to draw down cash gradually?
Should I cash in my Isa?

Dear Sir,

I hold nearly £750,000 in a stock and shares Isa that I have built up over 25 years. As I am now approaching age 70, I feel that I would like to reduce my risk thus would like to convert my stock and shares ISA into a Cash Isa. I am aware that a Cash Isa can be converted into a stock and shares Isa but I cannot find the process of doing vice versa. For example, do I just sell my stock and shares Isa and keep the proceeds in the same account as cash and withdraw as and when I wish to take some cash out?  

Your clarification will be helpful to me.

R Manghnani 

Yes, you can transfer holdings in a stocks and shares Isa to a cash Isa by selling your investments and moving the cash across. As long as it’s a direct transfer – ie, not via your bank account – you will retain all the tax benefits. You must open the cash Isa first therefore so it is set up to receive the transferred money. Not all cash Isa providers will accept a transfer from a stocks and shares Isa and there could be restrictions on the amount they will accept as a transfer in, so check this first before you complete the transfer instruction form. However, there is a bigger question to be answered, which is are you doing the right thing? On the one hand, it makes sense that you wish to minimise risk at this point in your life, and the amount you propose to switch to cash should be sufficient to deliver a respectable income for more than a decade even allowing for inflation. And your decision has perhaps been influenced by the risk of a crash or a long drawn-out bear market at some point. A plunge in value would obviously be most unwelcome.

But, on the other hand, by transferring all of your holdings into cash, you are creating new risks. These are that you might live for decades and you could run out of money, particularly if you require long-term care. Have you weighed up the fact that remaining invested in equities should help your pot to last longer, against safety and the damaging effect of inflation? Most financial advisers would probably suggest that you draw down funds gradually, leaving large sums invested to grow and replenish your retirement pot. It would be relatively easy to transfer part of your stocks and shares Isa to a cash plan, or, suggests Danny Cox, chartered financial planner at Hargreaves Lansdown, you could just cash in some of your holdings and make a withdrawal. If you move all of your holdings to cash, he adds, obviously “you rule out the ups and downs of the stock market but it does mean that the value of your capital will lose its buying power over time, because the interest you receive will be lower than the rate at which prices rise”.

You could choose the more speculative or riskier holdings to cash in first while aiming to maintain a good level of diversification. You could also consider switching into a small group of tracker funds to minimise the attention you need to pay to your portfolio and the cost of running it, although now might not be the ideal time to do this given the long bull market we’ve been through. An alternative might be to select a handful of wealth protection funds with good track records.

Remember that the rules around protecting client money and the amount of compensation available is different for equities and cash. Although the compensation available for cash savings held at any one separately authorised provider is higher at £85,000, equity holdings have to be legally ringfenced and so have an extra protection around them. So you may need to spread your money across several cash Isas if you are to make sure that your savings are fully protected.