Given the current uncertainty surrounding Brexit, the news this week that Britain's Royal Mint will join the current providers of gold to self-invested pension savers in the UK (SIPPS) - allowing British pensioners a tax efficient way of investing in bullion - is fascinating. While gold bullion has been allowed in SIPPs since 2006, this is the first time the Royal Mint has allowed its higher-quality bullion to be bought for pensions. Rather notably, investors will be charged up to 1% a year for the privilege of owning the bars, plus VAT, but with the pension wrapper will be free from Capital Gains Tax. British brokers are actively talking the move down but as BullionVault notes, this can only be a good thing.
As The BBC reports, The Royal Mint is to offer savers the chance to own gold bars within their pension funds for the first time.
Investors will be able to buy 100g or 1kg bars - or even a fractional amount of a larger 400oz bar - and have it stored at the Royal Mint.
The vault, at Llantrisant in South Wales, is guarded by the Ministry of Defence. Physical gold has been eligible for inclusion in Self-Invested Personal Pensions (SIPPs) since 2014.
However, it needs to be of at least 99.5% purity to qualify. Royal Mint gold bullion has a purity value of 99.9%. Investors will be charged up to 1% a year for the privilege of owning the bars, plus VAT.
Previously it was possible to buy gold bullion from the Royal Mint, but not as part of pension savings.
Within a pension wrapper, gold is free from Capital Gains Tax - although withdrawals are taxable at the usual rates.
As BullionVault.com's Adrian Ash notes, this move by The Royal Mint means more choice and competition for savers wanting to benefit from that potentially juicy discount to the spot price, up to 45% for higher-rate tax payers.
But, contrary to some of the national papers' breathless coverage of the Royal Mint's news however, gold bullion in pensions is not quite as sparkly fresh as a newly-minted sovereign gold coin. In fact, as BullionVault.com's Adrian Ash goes on to explain, SIPP gold goes back to 2006, when government policy on alternative assets shifted suddenly.
After promising to extend SIPP-able assets to include real estate, unlisted shares, even race horses, the Labour government suddenly backtracked – no doubt because even Gordon Brown could do the maths to see how much money the pensions tax-relief on all those assets would cost the Exchequer.
To mask the U-turn, the Treasury hit upon 3 criteria that an asset had to meet to qualify. It had to be easily priced (ie, freely tradable), immovable, and non-wasting. Fair enough, but that threw out pretty much everything which financial advisors had started planning to include in their clients' SIPP pension plans.
Yet none of these objections to these alternative assets applied to gold bullion – a fact of which BullionVault persuaded the legislators. Gold remained, as it has always been, a thoroughly credible investment.
As a result, investment grade gold bullion was included in the 2006 Finance Act as a special case. It's been very special ever since, and as a long-time leader in the SIPP gold market, BullionVault has gone on to help hundreds of UK pensions savers to include physical gold in their SIPPs at very low cost.
However, British brokers are quick to warn that gold is not always a good investment (for fear of potentially losing some of their clients' allocations to paper financial instruments).
"Investors need to understand investing in gold is by no means a one-way bet," said Danny Cox of investment platform Hargreaves Lansdown.
"Gold is notoriously difficult to value, subject to seasonal demand, and unlike shares and bonds, it provides no income for investors."
Between 2000 and 2011, the price of gold rose spectacularly, from $287 an ounce to $1,837. However, it has since fallen back to $1,253.
It is usually thought of as a way of protecting against the effects of inflation, or a collapse in the value of stocks and shares.
"Given an improving economic outlook and the prospects of interest rate rises in the US and UK getting closer, it is hard to see how gold gains many more followers from here, unless economies and central bank policies go into reverse," said Mr Cox.
He advised investors not to hold more than 5% of their portfolios in gold, and said there were cheaper ways to invest in it, such as through Exchange Traded Funds (ETFs).
But Ash adds, as most savers understand, gold inversely reflects peaks and troughs in monetary confidence, which is why it is loaded into national currency reserves as a counter-balance to crisis.
Back in 2006 the financial world was a happy, crisis-free place, so early adopters who perhaps smelled an ill wind tucked some gold away in their pension pots for as little as £315 per ounce.
Five eventful years later, as panic over the Euro peaked, the canniest traders were selling at over £1100 per ounce.
Since September 2011, when it felt like we were about three days from the implosion of the Euro, gold has settled back from its peak – going below £700 an ounce in July and then December 2015.
But now, once again, as the western world's governments struggle to maintain control under the strain of record levels of sovereign debt – and just as the world economy swings to the downside – gold has started bubbling up again. Currently priced at £870 per ounce it's showing a 24% rise in less than a year. If it's doing its usual job as economic canary then something is definitely not quite right.
So how do you go about actually buying gold with that potentially juicy 45% discount for UK pension savers?
First you must open a Self-Invested Personal Pension (SIPP). Then the key is to make sure you don't hand back all the profits in charges.
Generally speaking there are three charges to look out for:
- purchase premium and selling costs;
- bullion storage fees; and
- SIPP administration charges.
Finally we leave it to Martin Armstrong to conclude...
The problem, of course, is government historically can just arbitrarily change the law and there is nothing you can do about it.