Going for gold with your pension

The Royal Mint is making some of its gold bars available to hold in self-invested personal pensions (SIPPs). The announcement has certainly attracted attention – but what does this move actually mean?

Gold mine. Gold medal. Gold standard. Goldfinger, Goldeneye, The Man with the Golden Gun. Gold plated, good as gold, worth its weight in gold – you get the idea. Gold has a hold on our imagination like no other substance, surpassing even things like diamonds (not to mention the spice, saffron) which are actually far more valuable by weight. So the news that the Royal Mint will now allow pension savers to hold some of its gold bars in their pots has got plenty of people interested – even if they don’t quite understand what the benefits might be.

What’s actually being offered?

From 15 June 2016, HMRC is authorising pension savers to hold gold bullion in a particular type of pension plan, known as a SIPP (self-invested personal pension). You can find out more about SIPPs here – but essentially they are customised pension funds where the saver chooses which assets to invest in and manages the portfolio on an ongoing basis – either directly or through a financial adviser. Historically it has been possible to hold a huge range of different investments in a SIPP, but until now Royal Mint gold has not been available for this purpose.

Investors are now able to purchase and own a selection of bullion, from bars weighing from 100g up to 1kg (a kilo of Royal Mint gold is worth about £28,000), to shares in larger bars weighing 400oz (around 12kg). However, investors may be disappointed to hear that they won’t actually be able to get their hands on the stuff. The actual gold bars will be stored in The Vault – the Royal Mint’s secure facility at Llantrisant in South Wales, which is guarded by the Ministry of Defence.

Fans of treasure trivia may be interested to know that the Royal Mint also holds bullion in the form of gold coins – but these won’t be available to hold in SIPPs, because they do not meet the same standards of purity. According to Martin Tilley of Dentons (a specialist SIPP provider), ‘HMRC has set tight criteria about the purity and investment grade of gold that can be held in a pension scheme.’

It will cost investors up to 1 per cent (plus VAT) to keep Royal Mint gold in a SIPP – excluding any administration fees for the SIPP itself.

Why is this a new development?

It has in fact been possible to include gold in a SIPP since 2014. However, to qualify the gold has to be at least 99.5 per cent pure, which is difficult to establish. Royal Mint gold bullion in bar form is 99.9 per cent pure, so automatically qualifies – making it much more straightforward to hold gold of the required standard.

It has also been possible simply to buy gold from the Royal Mint, but not to hold it in a pension to shelter it from tax. Keeping gold in a pension means any growth in value is free from capital gains tax (CGT), although withdrawals from the pension will be subject to income tax as normal.

Yes, but is it really ‘as good as gold’?

The big attraction of gold is that it is traditionally the fall-back option when investors lose confidence in other assets. It tends to weather crashes better, and provides a reassuring bedrock to volatile paper currencies and financial markets.

During times of financial uncertainty (such as those caused by banking crises and geopolitical events such as the EU referendum), gold may become the go-to asset for investors, and then it comes into its own. However, during periods of ordinary financial activity gold is less exciting than it sounds. It works best as a protection against inflation, and as a form of ‘insurance’ against a collapse of equities, rather than as an income-generator in its own right. Its general stability is also its biggest drawback.

Gold held in a SIPP could help to provide cushion against stock market falls, but it should only make up a small percentage of your overall portfolio. A financial adviser can help you work out how much gold (if any at all) you should include.

Other ways to give your pension a golden touch

As you can see, it take more than gold in your SIPP to make it truly shine. As with so many things, a SIPP is all about the blend. If you are considering this type of proactive pension, here are some more tips for building and managing a SIPP successfully.

1. Make sure you understand the various asset classes in which your SIPP can invest (you can find out more about them here).
2. Ensure you have a good mixture of assets in your portfolio, to balance out risk and reward.
3. Monitor your SIPP regularly to ensure that is not becoming unbalanced (for instance if one asset class is performing disproportionately well or poorly).
4. Also actively manage your SIPP over time so that it remains suited to your needs (for instance, your willingness to take risk may reduce as you approach retirement).
5. Consider transferring other savings into your pension once you pass 55, for the tax relief boost.
6. Take professional advice on successful SIPP management – your financial adviser will be happy to give you a steer (or handle the whole process on your behalf).

To find a financial adviser who can help you construct the right SIPP for you, use the search on unbiased.co.uk.