Cryptocurrencies are virtual currencies which many individuals are using as a form of investment. It is entirely driven by demand and supply, with no external regulation from institutions like the Financial Conduct Authority (FCA), meaning it has huge fluctuations.
Aviva’s Research
New research from Aviva has found that 27% of respondents say they would consider investing in cryptocurrency as part of their retirement planning, and 23% would consider withdrawing part or all of their pension to do so.
43% reported being motivated by the higher potential returns that cryptocurrency could offer. However, 62% said they would be concerned about losing pension benefits if they opted out to invest in cryptocurrency instead.
8% reported that they had already withdrawn money from their pension to invest in cryptocurrency, with this figure being even higher among younger adults, at a significant 18% of those aged 25-34.
“There are lots of different investment opportunities out there, and it’s easy to see why cryptocurrency has become so popular in recent years. But we mustn’t forget the value of the good old pension. It comes with some powerful benefits, like employer contributions and tax relief, that can make a real difference to your long-term financial wellbeing. It’s important to weigh up the risks and rewards carefully and make sure your retirement savings are working as hard as they can for you.” – Michele Golunska, Managing Director of Wealth & Advice at Aviva
FCA’s Change in Restrictions
Bitcoin can indeed offer short-term rewards but it is highly volatile, making it too unpredictable to provide long-term financial security. In short, it is high risk, with the potential of high rewards.
Currently, individuals in the UK cannot currently directly purchase cryptocurrencies within their personal pension plans due to FCA regulations. The government website advises that HMRC does not consider cryptoassets to be a currency or money so they can’t be used to pay a tax relievable pension contribution to a registered pension scheme.
From 8th October next week, the FCA is lifting restrictions on offering UK-listed crypto exchange traded notes (cETNs) to retail investors in the UK, rather than just to professional investors. However, financial promotion rules would apply meaning consumers will not be given inappropriate incentives to invest, must get information on the risks involved, and should understand that they will not be covered by the financial services compensation scheme (FSCS).
According to research by WisdomTree, 40% of UK retail investors would be more likely to invest in cryptocurrency if this was offered by their bank, platform, or financial adviser. Therefore, the FCA’s decision to lift its ban on cETNs is likely to create an increase in the adoption of crypto, with some consumers sacrificing their pension savings in order to invest in this high-risk asset.