If you’re planning to add digital assets like cryptocurrencies to your pension fund, it might not be as straightforward as you’d like to believe. UK citizens are not allowed to hold crypto in their pensions. If you’re considering benefiting from the volatile crypto market, you can achieve this with a Small Self-Administered Scheme (SSAS).
Although traditional investments are important, including cryptocurrencies in your SSAS pension portfolio offers diverse benefits for long-term retirement planning. It’s a solid strategy for diversifying your portfolio and improving your returns. However, adding digital assets to your pension carries some risks.
Holding Crypto in Your SSAS Pension
A Self-Invested Personal Pension (SSAS) in the UK cannot legally invest in cryptocurrencies. Digital assets are considered too high-risk and not compliant with regulatory requirements. Financial advisors are usually wary about adding crypto to pensions due to the volatile nature of the assets. However, if you can leverage the advantages, you can decide to hold crypto in your SSAS pension.
A Small Self-Administered Scheme (SSAS) pension is a type of workplace pension that does not involve the bank. The company sets it up. The pension is designed by the directors and senior management, often found in small or family-owned businesses.
The SSAS pensions are open to 11 important business members and, in some cases, their family members. SSAS pensions offer more control than conventional pensions because every scheme member contributes to the decision-making. Investing in your SSAS pensions with cryptocurrency is legal in the UK as long as you’re following the rules and regulations set out by HM Revenue & Customs. Crypto platforms like Coinpass allow you to invest in cryptocurrency in compliance with this regulation.
Advantages of Adding Cryptocurrency to Your SSAS Pension
Adding digital assets to your SSAS pension portfolio offers diverse benefits which will contribute to long-term retirement planning. Here are some benefits of investing in cryptocurrency through your SSAS pension.
Hedge Against Inflation
Cryptocurrencies are often seen as a hedge against inflation, especially when they have real-world use cases like Bitcoin and Ethereum. They are unaffected by the same inflationary pressures as fiat currencies and usually have a limited supply, allowing you to safeguard retirement savings from inflation and currency risk.
Liquidity and Global Access
Since cryptocurrencies are not centralised, you can access opportunities from other countries. By adding digital assets to your SSAS pension, you can gain exposure to the global cryptocurrency market and benefit from the enhanced liquidity and returns.
Tax Efficiency
One of the benefits of the SSAS pension plan is the tax efficiency. The income generated from your crypto investments within the SSAS, like interest and dividends, are exempt from income tax. When you sell investments held within the SSAS, the capital gains are also tax-free.
Diversification
Most people hold normal investments like stocks, bonds, and real estate in their SSAS pension scheme, but adding cryptocurrencies can provide diversification. Cryptocurrencies are usually independent of traditional financial markets, making them an alternative asset class, spreading your risk and increasing returns.
Better Financial Control
SSAS pensions offer more control over your retirement savings than other types of pension plans, as all members can contribute to the decision-making process. Investors can actively manage their digital assets and consider their risk appetite and market analysis.
Risks of Adding Digital Assets to Your Pension
While adding cryptocurrency to your SSAS pension comes with diverse benefits, there are also some drawbacks that you should consider.
Cryptocurrencies are known for being volatile and risky, causing their value to fluctuate. Although this means you can take advantage and get high returns, short-term losses can be massive, making them risky for your retirement plans.
There are also security risks involved in crypto investments, like hacking, theft and fraud. You need to focus on protecting your private keys as losing them will eventually lead to a loss of assets, a risk you can’t afford for your retirement wallet.
Also, traditional financial institutions do not usually accept Crypto investments, and your financial advisor might be hesitant to include them in your portfolio due to their volatile nature. And, finally, even if crypto markets are always open, liquidity is concerning, especially during times when trading volumes are low.
These risks are worth bearing in mind when making the switch.
How To Open an SSAS Pension for Crypto Investments
To register an SSAS pension for your business, you can follow the steps below:
- Create a trust, which is the legal entity controlling the scheme.
- Go through the rules and regulations of your pension scheme and ensure that your SSAS provider supports crypto investments.
- Provide information about the trustees, members and the scheme. If approved, you will receive a pension scheme tax reference number.
- Establish two or more SSAS trustees who will manage and run the pension fund. They must be informed about what’s happening, so if you’re adding cryptocurrency to the scheme, inform them first.
- If HMRC approves your scheme, the next step is to fund it. All contributions are tax-free, but all pension members must keep to the annual limits.
- Select the cryptocurrencies you want to invest in. It’s best to choose tokens with deep liquidity and real-life use cases, as they offer long-term growth.
Introducing Crypto to Your Retirement Savings
Investing your pension in crypto assets is a good way to diversify your portfolio and enrich your retirement savings, with the promise of strong returns. But if you decide to add these assets, you need to make up a reliable strategy that will reduce your risks in the long term. You can create a highly lucrative financial future with the right trading strategies.
