How to invest in a SIPP

Self Invested Personal Pensions (SIPP) let you plan for your retirement without the need for a workplace pension. Here is how they work and what you should look out for.

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Pensions are long term investments. You may get back less than you originally paid in because your capital is not guaranteed and charges may apply.

What is a SIPP?

Self Invested Personal Pension is a DIY pension, which means you are responsible for creating, investing and managing it until you retire.

This differs to a workplace or group pension as you will not have to rely on an investment firm to manage your pension investments.

Any investment decisions you make in your SIPP until you retire will only affect your pension.

How do SIPPs work?

They let you save towards your retirement without needing to invest through your workplace. There are four steps to investing in a SIPP:

  • Pick the company you want to invest with

  • Choose which funds you want to invest in

  • Decide how much you want to invest in each fund

  • Manage your SIPP online

You are responsible for the performance of your pension money when you invest in a SIPP, so take the time to study each fund before you start investing.

If you are not sure if a SIPP is right for you, speak to an independent financial adviser for alternative options.

Pick a pension company

Use our comparison to find companies that let you set up and manage a SIPP, but make sure you find out all of their charges before you commit.

Make sure you check the following fees with as many pension company's as possible before investing.

Set up fee

This is how much a company will charge you for setting up your SIPP, and can vary from no charge up to £500.

Annual management charge

This is usually charged as a percentage of the total amount you have invested in your SIPP, and deducted each year.

Some company's reduce their charges when you invest over a set amount in your pension.

For example, 0.45% on any amount up to £250,000 but 0% on anything over £2 million.

Dealing charge

You can buy or sell investments in your SIPP at any time, but this could result in a dealing charge of up to £10 each time you do it.

Account administration

You may need to make account changes that have administrative charges, such as:

You may also get charged for requesting paper statements that show how much you have in your pension.

A SIPP can be a cost effective way to save for your retirement, but each company has different charges so make sure you compare as many as possible before you invest.

Choose your funds

Most companies let you choose funds by the level of risk they will put on your money, e.g. high risk funds could be a more volatile investment.

You could choose to invest in:

You can find out the past performance of all funds offered by a pension company on their website, but this is not a sign of any future growth.

If you do not know which funds to invest in, seek independent financial advice before building your SIPP.

Manage your SIPP

You can view and manage your SIPP online through your chosen company's website.

You should review all of your funds on a regular basis to make sure they are performing well.

If you see any of your funds falling in value, think about transferring them to another fund.

If you are not comfortable managing your SIPP, consider speaking to an independent financial adviser to get advice.

What happens when you retire?

When you turn 55 you can withdraw up to 25% of your pension fund tax free, but you will be charged income tax on anything over this.

Some SIPP companies charge you for withdrawing money from your pension fund, whether as a lump sum or as regular income payments.

You can also buy an annuity with your SIPP when you turn 55, which turns your pension fund into a guaranteed income for life.

Here is more information on pension withdrawals

You can help ensure you have the retirement you want by finding the best personal pension plan to make your money work as hard as it can.