UK pension scheme criticized for investing in Bitcoin

A recent decision by a UK pension scheme to invest in Bitcoin has raised some eyebrows and sparked a debate about the suitability of such a move. The unnamed defined-benefit scheme took the leap last month, allocating 3% of its assets to the cryptocurrency in what some have called a “deeply irresponsible” decision.

Pension specialist Cartwright, who advised the scheme, defended the move as a strategic decision aimed at diversification and tapping into the unique risk-return profile of cryptocurrencies. They argued that this approach could potentially offer significant benefits while limiting downside risks.

However, not everyone is convinced. Some experts have criticized the decision, describing it as akin to gambling with retirees’ futures. Colin Low from Kingsfleet expressed concerns about the short-term speculative nature of the investment, questioning whether pension funds should be taking such risks.

Daniel Wiltshire of Wiltshire Wealth echoed these sentiments, emphasizing the importance of prudently managing pension assets and fulfilling the obligations to scheme beneficiaries. Wiltshire referred to the investment in Bitcoin as “deeply irresponsible” and called for regulatory attention to safeguard members’ interests.

Bitcoin, the largest and oldest cryptocurrency, is known for its volatility and dependence on market conditions. While some investors view it as a digital alternative to traditional currency, many financial experts caution against investing money into crypto that one cannot afford to lose. The Financial Conduct Authority advises individuals to be prepared for the possibility of losing all their money when investing in cryptocurrencies.

Even though a 3% allocation to Bitcoin may not seem significant, it can impact the overall performance of a pension fund. If Bitcoin’s value continues to rise, it could provide a substantial boost to the scheme. Conversely, a decline in Bitcoin’s price could have a detrimental effect on the fund’s returns.

As a defined pension scheme, the risk associated with the Bitcoin investment falls on the employer, rather than the scheme members. Laith Khalaf from AJ Bell notes that while many individuals have personally invested in cryptocurrencies, making the case for including it in a pension portfolio for diversification purposes is more challenging. The volatility of Bitcoin’s price history raises concerns about its long-term sustainability and adoption as a mainstream investment option.