Given the widespread use of negative interest rates, the volatility of the markets, and the uncertainty of the world’s economic future in general, pensioners are right to be worried about the fate of their retirement funds.
There is a fair argument to be made that retirement accounts and pensions ought to be funded by the safest investments. One of the major consequences of the financial crisis was that many retirees whose investments were tied up in risky mortgage-backed securities (often unbeknownst to them) lost most or all of their hard-earned savings.
The Royal Mint of the U.K. seems to have arrived at the most natural and common-sense answer to this problem. Brits who are funding their pension plans will now be able to buy 100-gram or 1,000-gram (1 kilo) gold bars to fund their pensions, and there is some suggestion that they may be able to purchase fractional amounts of 400-ounce Good Delivery bars like the ones approved by the London Bullion Market Association (LBMA)
Personal finance reporter Brian Milligan points out that “Physical gold has been eligible for inclusion in Self-Invested Personal Pensions (SIPPs) since 2014.” He continues, “Previously it was possible to buy gold bullion from the Royal Mint, but not as part of pension savings.”
U.K. Plays Catch-Up
These gold-funded SIPPs are essentially Britain’s version of the self-directed IRA (also known as a precious metals IRA or simply “Gold IRA“) in the U.S. It has taken the U.K.—often seen as the second-biggest financial center of the world economy behind the States, and certainly the home to the world’s biggest gold vaults in London—until now to make one the country’s most popular gold bullion products eligible for these pensions. By contrast, the U.S. Treasury Department opened up this mode of funding a retirement account with precious metals in 1997, the same year that the American Platinum Eagle bullion coin as introduced.
Like IRAs, the funds (whether gold or otherwise) added to SIPPs are free from capital gains unless prematurely withdrawn, which is why pensions are attractive in the first place. There are a few drawbacks, however. The Royal Mint gold bars will still be subject to the VAT (value-added tax, 20%) and an annual 1% fee when purchased.
Danny Cox, who works for the British investment platform Hargreaves Lansdown, points out that gold is “a way of protecting against the effects of inflation, or a collapse in the value of stocks and shares.” He follows up this apt description of gold’s usefulness as a hedge, however, by offering skepticism. He suggests, according to a report from the BBC, that “gold is not always a good investment” and that using gold-backed ETFs is a cheaper alternative.
This qualification notwithstanding, there will be plenty of British pensioners who are excited to add a trusted gold bullion product to their retirement plans.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.