UK citizens are not allowed to hold crypto in their personal pensions. So, if you’re looking for a way to take advantage of the volatile crypto market, there are two ways to achieve this.
You could buy shares in crypto industry companies or set up your own Small Self-Administered Scheme (SSAS).
What Is an SSAS Pension?
SSAS pensions are a form of workplace pension that can be handled entirely by the company that sets it up. They don’t involve any dealings with banks and are usually designed by directors and other senior managers to deliver better retirement benefits and increased investment flexibility. They are most commonly found in small or family-owned businesses but could be open to all employees and their families.
SSAS pensions give more control over investment choices than conventional pension plans. Investing your SSAS pensions in cryptocurrency is safe and legal in the UK as long as it follows the rules and regulations set out by HM Revenue & Customs. Platforms such as Coinpass provide easy integration and compliance with these regulations.
Why You Should Consider Cryptocurrency for Your SSAS Pension
Cryptocurrencies are modern assets that do not closely align with more conventional pension holdings and so offer additional advantages, including:
Diversification
Diversification is one of the primary benefits of adding cryptos to an SSAS pension. Cryptocurrencies are not part of any centralized market and thus constitute an entirely different asset class. Incorporating crypto into a pension portfolio allows investors to diversify away from stocks, bonds, real estate, etc., which could lower risk and even provide the potential for greater returns.
Potential for Better Returns
Cryptocurrencies are well known for their high growth potential. Bitcoin’s price history shows that it initially started at $0.10 and is now worth well over $90,000. In just 2024 alone, the global cryptocurrency market grew by 68%, with the potential for more growth in the coming years.
Protection Against Inflation
Cryptocurrencies, particularly those with actual use cases like Bitcoin, are considered resistant to inflation. These forms of cryptocurrency are scarce and do not face inflationary pressures like Fiat currencies, thus providing the possibility to maintain purchasing power in the long run.
Tax Breaks
Members will receive tax relief on contributions they make to the SSAS pension. Basic rate taxpayers receive a 25% top-up. Higher-rate taxpayers may also claim additional tax relief through their self-assessment tax return.
A Way To Invest in the Company
SSAS also allows directors to buy shares in their company (a maximum of 5%). Firms can also obtain a loan from their SSAS pension to finance their business at a lower interest rate than conventional business loans from banks.
How To Set Up Your SSAS Pension
Here are the steps to register your SSAS pension.
Step 1: Create a Trust
This will be the legal entity controlling the scheme. The Trust Act and regulations define the scheme’s specifics, such as membership criteria, donations, and investments.
Step 2: Go Through Your Pension Scheme’s Rules and Regulations
Ensure your SSAS provider offers investments in cryptos and the terms under which it is permissible. Some schemes can even limit the assets you can put into it.
Step 3: Register The SSAS Scheme With HMRC
Registration involves providing information about the trustees, members, and the scheme. If approved, you’ll be given a pension scheme tax reference number.
Step 4: Establish At Least Two SSAS Trustees
The trustees will manage and run the pension fund. Trustees need to be able to make smart investment decisions, so if you want to deposit some Bitcoin or crypto into the scheme, they need to know what’s going on.
Step 5: Fund Your Scheme
If HMRC approves the scheme, then it must be funded. Contributions are tax-free, but there are annual caps, and trustees must keep contributions within these limits to avoid penalties.
Step 6: Choose a Strategy
An SSAS is an investment vehicle that can contain many types of investments, such as commercial real estate, stocks, and cryptocurrencies. So, it’s important to choose how much of your portfolio will be held in crypto. A popular rule of thumb is to be modest and invest only a small percentage of your overall portfolio.
Step 7: Select Your Cryptocurrencies
If you are familiar with the crypto market, you should know the tokens that are good for long-term investments. Choose popular cryptocurrencies with real-life use cases and deep liquidity. These coins, such as Bitcoin and Ethereum, are less volatile and relatively secure. You can vary your portfolio to reduce exposure to a single coin.
Step 8: Rebalance Your Portfolio Once In a While
Cryptocurrency markets can change rapidly. You should continuously monitor and rebalance your portfolio to lock in returns as the market develops. Depending on your asset allocation, this could mean purchasing more cryptocurrency at low prices and selling some at high prices.
Crypto Integration for Retirement
Introducing crypto to your SSAS pension is a great way to enrich your retirement savings with a new asset class that can deliver strong returns. However, you must do it with a clear vision of the risks and a well-defined plan. If you plan well and follow best practices, you can easily integrate crypto into your retirement account and begin to look forward to a potentially lucrative financial future.
Read more:
Is It Legal To Invest SSAS Pension in Cryptocurrency?