Financial security in retirement is a concern for many workers as they age. Having a stable income from a pension pot or investments can ease financial strain and help maintain a comfortable lifestyle.
Across the UK, many individuals are turning to cryptocurrency investments as a pension option. According to a survey by Aviva, 27 per cent would invest funds into crypto assets as part of or all of their retirement plan.
The motivations behind it are the high potential returns and wanting to diversify their portfolios beyond the traditional options. But in some cases, a lack of knowledge about pension contributions and fear of the new and unknown is holding people back.
Institutional investment is lagging behind individuals, and the majority of investments are in Bitcoin assets. However, that is likely to change significantly in the near future with more investments in other altcoins such as XRP crypto and Ethereum.
What is the current interest in crypto pension funds?
Institutions in the UK and the US are increasingly looking to diversify their pension portfolios with cryptocurrency.
In the US, some states have drafted legislation to let public funds invest in crypto assets, but this is limited to a low percentage of the overall fund.
Indiana is the latest of 21 states to allow public pension funds exposure to digital assets and the use of exchange-traded funds. It joins
In the UK, a growing number of pension schemes have invested in non-fiat currency as part of their portfolio. The first was reported in 2024, when a pension scheme invested three per cent of its fund in Bitcoin.
According to reports from Cartwright Pension Trusts, large hedge funds across the world are allocating a small percentage of their investments to digital currency.
The reasoning behind it is to hedge against market crashes of traditional investments and crypto’s high return potential.
What are the challenges of pension investments using crypto?
The challenge of any investment is balancing risk with return, and the same applies to pension funds. Diversifying funds can help to mitigate some of the risks involved.
Being a higher risk investment, pension scheme providers need to fulfil their fiduciary duties to protect investment and do this by limiting the amount allocated to crypto assets.
Occupational scheme trustees are required to manage funds to ensure liquidity, quality, security and profitability. For more conservative portfolios, a substantial investment in crypto is not seen as a prudent option.
In the UK, the Pension Regulator has not issued specific rules on direct investment in crypto. However, neither the FCA nor the Pension Regulator have declared a ban on crypto investment.
HMRC has stated that all individual investors should declare crypto earnings so it can take its cut.
What are the benefits of using crypto investments in a pension portfolio?
The main benefit of adding crypto assets to a pension portfolio is the growth performance. Crypto has the potential to have a much faster and more lucrative return on investment than traditional pension investments.
Government bonds, publicly traded companies, commodities and infrastructure investments, while often more stable and predictable, have a much slower growth rate.
How can pension funds be protected when investing in crypto assets?
Pension scheme providers have a fiduciary duty to protect the investments and act in the best interests of scheme members. Institutional pension funds in the UK are protected through the Pension Protection Fund and the Financial Services Compensation Scheme.
Compensation if the pension provider fails or loses the investments is 100 per cent for final salary schemes if you are at pension age and 90 per cent if you haven’t reached that age.
For personal investments, such as Self Invested Personal Pensions (SIPPs), compensation is limited to £120,000.
In the UK, workplace pension schemes are overseen by The Pensions Regulator alongside the Financial Conduct Authority (FCA), who oversee personal pensions. They ensure that the providers look after the savers’ money.
New regulations are due to come into effect in the UK in 2027, when crypto assets will be under the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026. It will mean crypto firms will be regulated by the Financial Conduct Authority.
The changes may impact the growth of pension scheme providers’ investments in crypto assets, providing a more stable and safer investment.
How can individuals invest in crypto for pension funds?
Since HMRC does not recognise crypto as a currency for pension funds, investments won’t get the tax relief benefits when paid into registered pension schemes.
At the moment, individual investors in the UK can only indirectly invest in cryptocurrency through SIPPs or particular ISA accounts. Exchange-traded notes can be used rather than direct investment with a crypto wallet.
It is unlikely that digital assets will make up the majority of an institution’s pension portfolio until the market matures and becomes more stable.
The growing interest in high-yield investments and changes to legislation mean that we will probably see more public pension trusts taking advantage of exposure to crypto as part of their portfolios.