How can we manage risk if "cash-like" investments are restricted?

Q. How can we manage risk during retirement if the government bans or restricts the use of money market or short-dated bond funds inside stocks & shares ISAs?

A. You are referring here to speculation (as yet unconfirmed) that the government could restrict the use of “cash-like” investments, including money market funds, within stocks and shares ISAs.

This follows the recent announcement that the amount savers can put into cash ISAs is being cut from £20,000 per year to £12,000, from April 2027. The cut is intended to encourage more people to invest rather than hold large sums in cash. The government has published a handful of new rules to stop people circumventing the £12,000 limit. For example, there will be a penalty on interest earned on cash held inside stocks and shares ISAs.

• Watch: Cash ISA overhaul: what can savers do now?

The government has also mentioned tests to determine whether an investment is eligible to be held in a stocks and shares ISA or whether it is ‘cash like’.

Detail is currently thin on the ground, and industry is due to be consulted. However, it’s understandable to be concerned.

Retirees are often more exposed to the impact of stock market downturns, so restrictions on lower-risk options could feel unsettling.

Importantly, the government appears mindful of the need to avoid pushing retirees into taking undue investment risk. For example, when cutting the cash ISA allowance, it introduced a carve-out for those aged 65 and over, allowing them to continue contributing the full £20,000 per year.

• Watch: How much cash should you hold in retirement?

Therefore, if you want to hold cash, you could potentially transfer money from your stocks and shares ISA to a cash ISA.

The new rules ban transfers from stocks and shares and Innovative Finance ISAs to cash ISAs. However, HMRC’s guidance says the rules “will apply to investors under the age of 65”, so let’s assume (for now) that those aged 65 and over will still be able to transfer money from a stocks and shares ISA to a cash one.

Admittedly, this comes with extra friction. And, if you plan to move temporarily into cash because of market volatility, switching between ISA types could make it harder to reinvest later - potentially causing you to miss out on market gains.

If you want to keep your money within a stocks and shares ISA and derisk it, you could consider investing in a bond fund.

• Read: Why it pays to understand the bond market

However, if restrictions were introduced on short-term bond funds, you would have to opt for a general bond fund, which would come with more risk.

You could also opt for a multi-asset fund, which holds a range of investments - usually a combination of stocks, bonds and cash. The lower-risk versions of these (often called “cautious” or “defensive”) will have greater allocations to bonds and cash and lower allocations to stocks.

For example, Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Defensive Fund is currently invested around 79% in bonds and 21% in stocks. Similarly, the Barclays Multi-Asset Defensive Fund is invested 68% in bonds, 12% in cash and around 18% in stocks. Remember these allocations can change over time. You also can’t simply draw on the cash element of the fund if you need it, leaving the rest invested. You would sell units in the fund as a whole, meaning you effectively sell a mix of everything it holds.

If you’re worried about a stock market crash, you could remove that risk entirely by using some of your pension savings to purchase an annuity - which pays you a guaranteed income for life.

• Get updates on markets, ISA funds, pension saving and much more

The benefit of an annuity is that you remove investment and longevity risk by exchanging your pension pot for a guaranteed income. The trade-offs are that your money no longer benefits from future market growth, and - unless you choose specific add-ons such as a joint-life option or a guarantee period - there is unlikely to be anything left for your family to inherit. Annuities also lack flexibility, which means you have less control over the timing and amount of income you receive and therefore less ability to manage your tax position.

Ultimately, we will need to wait and see what the Chancellor announces. Making a significant life decision, like swapping your pension savings for an annuity, based on unconfirmed speculation is a high-risk strategy that you could later regret.

The Government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.

Fidelity’s Retirement Service also has a team of specialists who can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.

Source:

¹Tax-free savings newsletter, GOV.UK, 19.11.25

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.