Is investing in gold be the hidden solution to a diversified portfolio within a SIPP? Damien Bowler, Pensions Technical Manager, Curtis Banks, talks about how holding gold with a pension works.
Advising clients on their pension comes with a host of considerations from their risk appetite, ethical views, years till retirement, value, and cost. Regardless of this, one point that always requires careful consideration is diversification.
Gold can provide diversification for a client’s SIPP portfolio in particular as it is different to the more mainstream investments. Gold can help reduce risk in a similar way to cash holdings, it is classed as a standard investment, which means it is easier to value and is a liquid asset. In addition, there are opportunities for good returns over the longer term and provides quick access to funds if required.
Gold has been used as a store of value for centuries and has historically held its value well over the long term. Holding it within a well-balanced and diversified portfolio will help provide a buffer against losses on other assets during uncertain times. It is not however recommended as a sole investment, within a SIPP portfolio and the general opinion is that you should hold no more than 10% of any single investment.
Following the FCA’s decision in 2014 to deem gold bullion an allowable investment within a SIPP, it has become simpler to invest in. The options to access gold investments, as well as the variety of investment types, have steadily grown, putting it within reach of more pension savers.
When investing in gold clients might think of a large shiny gold bar, and while this is one option, there are ways to invest indirectly, including via an exchange-traded fund (ETF) or derivative. An ETF is a fund that tracks the price of gold and can be bought and sold like a stock. A derivative is an instrument that derives its value from the performance of gold. All forms of investing in gold come with their own set of risks and advantages which should form part of the due diligence process.
Clients can gain direct access to gold investments via the Royal Mint or other specialist investment firms, however, it is important to consider the SIPP provider that is being used as they may not allow direct holdings in gold. Where a SIPP provider allows access to gold directly, they may have their own specific restrictions, such as purity, the form it takes, and weight which will all need to be taken into account.
There are also other considerations when investing in gold, what links does the provider have with the chosen SIPP provider, is there an automated or manual reporting process, and if manual does this increase the cost to the client? What are the application and dealing processes, is that in line with your expectations and is it suitable for you and your client. Online dealing is viewed as convenient and simpler by many, but not adopted by all investment providers
With direct holdings in gold bullion, the SIPP provider will not be able to hold it on behalf of a client’s pension, and therefore the adviser’s due diligence process will need to consider the storage facilities, insurance provisions and associated costs. The Royal Mint has state of the art vaults in the country as well as comprehensive security and insurance. If you are looking to go elsewhere to hold gold, this should be a key consideration alongside the costs involved now and in the future.
Most SIPP providers will be able to assist you with identifying gold investment firms that they work with and if there are electronic links for simplified processing and reporting. They will also be able to confirm the application and dealing processes if they have previously arranged the suggested investment.
It sometimes feels like gold is out of reach. But the potential benefits can be clear if used as part of a balanced SIPP portfolio. It can provide low-risk diversification in a tax efficient environment and, provides flexibility and security during uncertain times with good potential growth over the long term. Given the uncertainties that currently exist in the world could this be a SIPPs golden opportunity?
