Following last week’s blog by Jennie, we have received a number of enquiries from people who are concerned about over exposure to stocks, shares, bonds and other paper investments and interested in Gold Pensions. I thought it would be worth following up with some more specific information and add my own thoughts and knowledge on the subject.
Pensions and other instruments that have been created by the government to encourage people to save and invest for the future tend to dogged by bureaucracy and are not as cost free as we think they should be. Nevertheless the tax benefits available mean that they should not be simply overlooked for that reason alone.
These are questions we are commonly asked but please feel free to add your own or give me a call at Bleyer Bullion and I will do my best to answer your queries.
Before I start, you should note that I am a bullion dealer and not a licensed wealth manager or financial adviser. I am also an investor with general knowledge about taxes that has come from my own experiences. Anything said here should be double checked through your own personal research or with qualified advisors. We hope to be organising an event in the South West Area soon in liaison with a tax and pensions specialist.
What are the benefits of buying gold in a pension?
- Tax Free Gold – If you are a top rate taxpayer £10,000 worth of gold could only cost you £6,000. The government pays for the other £4,000.
- Diversification - Most advisors will tell you that in order to lower your risk and exposure to any one market, it is good to have a diversified and balanced portfolio. According to environmental factors there, will always be some sectors to avoid and others where you may want a higher weighting. This is down to personal preferences and is likely to be influenced by your own interpretation of the current economic situation, together with advice from your advisor if you use one. Gold tends to be used as a hedge against a poorly performing stock market and other economic disasters. Gold doesn’t pay dividends or provide an income but if bought in smaller increments can be sold in units when you need to take income out of a pension.
- Reducing Risk - Physical gold has been proven to preserve wealth over the long term and for this reason more and more savers are allocating physical gold to their pension portfolios. Gold is an attractive asset to hold within your pension as it has no counterparty risk, adds diversification and is a proven safe haven in turbulent times.
Gold pensions and who does what?
Pensions are fairly tightly controlled, the parties include:
- You the client
- The advisor (your own IFA, or we can put you in touch with one that comes recommended by a few of our clients)
- The Trustee (an administrator – we use Curtis Banks)
- Bleyer – we manage the purchase, delivery and storage arrangements.
- Custodian - our LBMA approved partner (the vault) takes care of storage and insurance on behalf of Bleyer.
How does a gold pension work?
Gold is purchased using funds allocated in your pension wrapper. Any gold purchased for your pension must be stored at 'arms length', it can't be a 'pride of possession' article. As the bullion dealer we buy the physical gold bars when instructed which are purchased using funds in your pension wrapper delivered to our 3rd party custodian where they are securely held. We opt to use a third party custodian rather than storing ourselves.
The benefits of vaulting is that you get state of the art security from a trusted, fully insured, tightly controlled, LBMA certified vault. Storing in this manner is much more tightly controlled, we are 100% fully insured for every occurrence. Bar numbers are recorded by us and them.
What is a pension wrapper?
You can nominate to put funds into a pension, sometimes this may be part of a work-based, private or other type of pension. When you put new money coming from taxed income into a pension, government reimburses tax from the top percentage you have paid, downwards. Either you get back tax you have paid or you put money in before tax is deducted from your pay (known as salary sacrifice). See this link to the HMRC site for a better explanation as to how this works.
What percentage of my pension should I hold in gold?
As the first step, you should decide how much gold you want to own. Usually, you will hear that gold should make up 5% to 25% of your total savings, so you should look at your other investments and assets as well as your pension. This is true for any asset: you can never fully rule out the possibility of a turn in a particular market. Therefore, it's better to put your eggs in different baskets (diversify).
I found quite a useful article on a US site that gives some food for thought on this subject “How much gold should I own in my portfolio”
Is buying gold in a pension the best way to own gold?
When you are looking at any investment vehicle, you need to consider its intended purpose and also when you expect to need to use it. Once you put money into a pension, getting it out isn’t that simple as it is constrained by rules that govern pensions so it is worth familiarising yourself with them before you go ahead.
You can more easily and cost effectively buy gold outside your pension and have total control over it without having to defer to others, what you don’t get are the tax advantages that are available with a pension.
How much does it cost and is it worthwhile buying gold in a pension wrapper?
It is difficult to say on a general basis how much it costs as this will be determined by the complexity of what you have going into your pension and how you want it designed. As you consider gold, you may find that although there are costs involved you may be able to lose some costs you are already paying elsewhere through a bit of consolidation, so don’t be put off before you speak to someone or get a quote.
Cost there are 3 sets of costs to consider:
a. SIPP provider
The fees are fixed rather than based on the value of the pension, so for a particularly small pension, the costs are higher as a percentage. Charges are split into setup and then an annual fee.
- The setup fee levied is determined by i) the number of transfers and ii) type of transfer (transferring funds in from another pension) £250 - £1000. If it was 1 it would be at the lower end of the range and if it was from multiple pensions say 4 it would be the higher figure.
- Ongoing costs £250 - £1000 per annum depending on what you do and how many different types of asset you hold in your SIPP which can include commercial property, stocks. Here is a SIPP Wikipedia definitionbut there is plenty more on the web if you search.
b. The IFA
Opens the account for you with the Trustee (SIPP provider). Charge 2-3% of what is being transferred, depending on how much and how complicated, the level of advice required and time needed allow approx £1,200.
To get things started the IFA will first chat with you to look at the product(s) you have at the moment, what you are looking for and make you aware of the general costs (this bit should be free of charge). If you still want to go ahead then they need to get an authority letter from you so that they can write to your existing provider and get information only at this stage. They’d find out what you have and ask specific questions to get the information they need to know. (no cost). They would then put information into a legible table so that they can have a meaningful conversation with you to make you aware of the costs of transfers etc.
Ongoing charges, post setup, depend on what work is needed. There are a number of service options which are nil for gold if the IFA doesn’t need to do anything.
- The IFA is not engaged on an ongoing basis unless other investment advice is wanted. Then it can be on whatever basis is needed. If no advice needed beyond initial setup then there are no fees.
- Full advice service on a basket of investments with ongoing review 1% minimum of £100K
- Portion in gold and other money in other investments 0.5%
We charge 0.8% on the value of the gold per annum for storage and insurance annually. There are small delivery costs to the vault and a handling charge of £40 every time gold goes in or out this is what we are charged by the custodian and it is passed on at cost. Whilst the gold is VAT free, storage and service charges are subject to VAT.
If I have gold in a pension can I also hold gold personally in other formats?
Yes of course you can and you may in fact prefer to buy Capital Gains Tax Free gold and silver coins which will give you protection against future gains. This method of ownership is much more liquid and can be turned into cash at any time to go directly into your pocket. We at Bleyer can talk to you more about this and point you in the right direction.
Can non-pension gold also be stored securely by Bleyer?
Yes of course, we look after gold in and outside pensions and in the same way as described above, the gold is 100% allocated and all parties have a record of the bar numbers, us you and the vault.
I hope that this guide has been helpful to you, as always we welcome your comments and questions. We are are ready to assist you at every step, you can reach our team during office hours on 01769 618618 or send an email to [email protected].