RP case studies: Gold investing through SIPPs explained

In the latest RP case study, Dentons' Stephen McPhillips outlines how to invest in investment-grade gold bullion via a SIPP

Amanda is an experienced investor and she has a portfolio of personal investments invested across a range of different collectives. In addition, she has an existing life office personal pension worth £70,000, which she feels has been under-performing in recent years. She also has a small portfolio of buy-to-let properties.

At their annual review meeting, Amanda explains to Sarah, her financial adviser, that she would like to look at other investments for her pension money to complement her personal investment portfolio.

Sarah outlines a broad range of possible investments that can be made within personal pensions and also within self-invested personal pensions (SIPPs).

Amanda is keen on the idea of physical commodities and is pleased to learn that investment-grade gold bullion can be held within a SIPP. She feels that gold bullion represents a good investment that will help to diversify and enhance her overall investment portfolio.

Sarah points out to Amanda that gold bullion can be a volatile investment and that there can be no guarantee of future returns, which Amanda fully accepts.

In addition, Sarah makes the following important points:

  • investment-grade gold bullion has a specific exemption from being treated as “tangible moveable property” (which would normally be “taxable” property) within SIPPs and it is the only physical commodity to benefit from this exemption
  • the gold bullion must be a purity of not less than 995 thousandths and held in the form of a bar or wafer of a weight acceptable by the bullion markets
  • Amanda cannot hold the gold bullion personally and it must be held in a secure vault to the order of the SIPP provider’s trustee
  • Amanda cannot use or display the gold bullion because it must be held for investment purposes only
  • there is likely to be a custodian fee in relation to holding the gold bullion in a secure vault and to cover the cost of insurance.

Following the review meeting, Sarah agrees to research the market to ascertain where Amanda might be able to access gold bullion investment with her pension monies. Sarah had already pointed out to Amanda that her life office personal pension is unable to offer a physical gold option and that she would need to transfer to a suitable SIPP in order to make this investment.

Sarah’s research reveals that some SIPP providers do offer the facility to hold gold bullion in a cost-effective manner. She also discovers that her preferred SIPP provider offers this option and that it allows it on the basis that it is done through a UK direct gold investment service. She explains to Amanda that such a service provides the required gold storage arrangements and has sufficient controls in place to ensure that any monies are paid back into the SIPP bank account only.

Sarah outlines the process that Amanda would need to follow in order to achieve her desire to invest her pension monies in this manner:

  • establish the current cash transfer value of her existing life office personal pension, allowing for any exit / transfer penalties
  • decide, in light of this, whether to transfer the monies into a suitable SIPP
  • If proceeding, establish a new SIPP with a provider that can accommodate gold bullion within its arrangement
  • transfer the cash from her life office personal pension into the new SIPP’s default bank account
  • make the purchase of the gold bullion with cash in the SIPP
  • invest any remaining monies in line with Sarah’s investment recommendations using, where appropriate, an investment platform or platforms.

Amanda takes Sarah’s advice regarding selection of a suitable SIPP provider and proceeds with the transfer and purchase of gold bullion.

Stephen McPhillips is technical sales director at Dentons Pension Management