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Self-invested personal pensions - or SIPPs for short - give you total control over your retirement savings, letting you put your money exactly where you want it

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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.
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Last updated
February 20th, 2024

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What is a SIPP?

SIPP stands for "self-invested personal pension". It is a form of defined contribution pension, which means that the amount of money you get when you retire is dependent on how much you save, the tax relief you get added on, and how well your investments perform.

SIPPS allow you control everything from how much you save to where the money is invested. For this reason, SIPPs are often also called “DIY pensions”. You’ll be responsible for choosing the assets you invest in, deciding when to buy and sell, and ultimately responsible for the performance of your savings.

People who invest in a SIPP need to have a thorough understanding of investments and the markets. If you want the flexibility of a SIPP, but also want help with your decisions, you can employ a financial adviser, however this comes with a price tag.

SIPPs have all the same tax advantages of other forms of personal and workplace pensions. That means you’ll get tax relief on the money you save, and you get a tax-free lump sum at retirement. It is also subject to the same rules and restrictions around how and when you can access the money (learn more in our ‘how does a SIPP work’ section.

The cost of a SIPP varies depending on whether it is a full SIPP with an extensive range of investments available, or a ‘low cost’ SIPP with fewer options.

How does a SIPP work?

Once you’ve set up a SIPP, you can start saving money. You can put in a one-off lump sum, make regular contributions, or even put in different amounts each month.

In many ways, these products work just like any other pension saving, in that you save your money and get tax-relief on top.

The main difference is that you choose exactly what funds, shares, trusts or other investment vehicles your retirement savings go into, then swap these around as and when you see fit. There are lots of asset classes to get your head around, from collective investments and company shares, to investment trusts and commercial property.

It’s important to review your investments regularly and make sure you thoroughly research your options when deciding where to put your money. You’ll need to set aside regular time to keep on top of your portfolio and make decisions. Remember, with managed pension funds, there is someone who’s full time job is to decide where your money is invested and what assets to buy and sell. In a SIPP, this is all your responsibility.

You still get the added benefits of a pension - which include a government top-up in the form of tax relief. This will be 20% if you’re a basic rate taxpayer, but you’ll get more if you’re a higher or additional rate payer. To get the higher amounts you will need to complete a self-assessment form.

You choose exactly what funds, shares, trusts or other investment vehicles your retirement savings go into, then swap these around as and when you see fit. That means it’s important to review your investments regularly and make sure you thoroughly research your options when choosing a pension.

You still get the added benefits of a pension - which include a government top-up in the form of tax relief. This will be 25% if you’re a basic rate taxpayer, but you’ll get more if you’re a higher or additional rate payer. You also get protection from capital gains and income tax on any growth. However, while money inside the SIPP is protected from tax, your withdrawals aren't.

You can't access money held in your SIPP until you're 55 (rising to 57 in 2028), but after that, you can withdraw as much or as little as you like. If you'd like to access your savings sooner, you could look at a stocks and shares ISA. Like SIPPs, these are free from capital gains tax and stamp duty. While you give up income tax relief on the money you pay in, your withdrawals are tax free.

You also get protection from capital gains and income tax on any growth. However, while money inside the SIPP is protected from tax, your withdrawals aren't. When it comes to retirement, you can take 25% of your savings tax-free, and the rest is taxed at your marginal rate.

You can't access money held in your SIPP until you're 55 (rising to 57 in 2028), but after that, you can withdraw as much or as little as you like. 

You have several options in terms of how you can take the money, which include drawdown, UFPLUS, an annuity and full withdrawal. Consider the tax implications carefully before you decide what to do. You can find out more about pension withdrawal options with our guide. 

If you'd like to access your savings sooner, you could look at a stocks and shares ISA. Like SIPPs, these are free from capital gains tax and stamp duty. While you give up income tax relief on the money you pay in, your withdrawals are tax free.

Annual tax relief on pensions[1]
£48.2bn

Should you invest in a SIPP?

Whether or not a SIPP is right for you, depends on your retirement goals, employment circumstances and investment knowledge.

If you already have a workplace scheme through your job, this comes with a host of benefits including employer contributions, a cap on costs, and strong governance. Therefore, a SIPP should only be considered for additional savings, rather than as an alternative to your workplace pension. If you opt out from your employer pension to save into a SIPP instead, you’ll lose the generous employer contribution.

Some employers offer something called matching. This means that if you increase the amount that you save each month, your bosses will too. If this is an option, you should consider this before turning to a SIPP, or you will miss out on the top up.

SIPPs are designed for people who want more control over their investments. However, some employer schemes also allow you to make investment choices. Check what’s on offer before you decide.

Self-employed people or those who do not work do not get automatically enrolled into a workplace scheme. For these groups, SIPPs are one of the options to save for retirement. 

But investing in a SIPP means making your own investment choices, so it’s not for novices. There are other options such as personal pension, NEST or a stocks and shares LISA, that may be a better fit. If you do decide to invest in a SIPP, consider seeking independent financial advice to help you make the right investment choices.

What are the different kinds of SIPPs?

Full SIPP

Full SIPP

This gives you the most choice over where to invest with a wide range of funds and shares available, but typically charges higher fees.  Sometimes, they’re only accessible to people with a significant sum of savings. This could be the best SIPP option if you have lots of experience with investing, however, charges can be high. Some SIPP providers give you access to a team of experts with whom you can discuss your investments.

Low-cost SIPP

Low-cost SIPP

Sometimes called a low-cost DIY SIPP or lite SIPP, these products still offer plenty of choices on where you can invest, but not as many as a full SIPP. For instance, there's usually no option to own property or offshore funds or to invest in unquoted shares. This could be the best option if you have a smaller pension pot, as you can open one with a lump sum, and the charges are lower. You won't get any advice from the pension provider.

What are the different kinds of SIPPs?

Full SIPP

Full SIPP

This gives you the most choice over where to invest with a wide range of funds and shares available, but typically charges higher fees.  Sometimes, they’re only accessible to people with a significant sum of savings. This could be the best SIPP option if you have lots of experience with investing, however, charges can be high. Some SIPP providers give you access to a team of experts with whom you can discuss your investments.

Low-cost SIPP

Low-cost SIPP

Sometimes called a low-cost DIY SIPP or lite SIPP, these products still offer plenty of choices on where you can invest, but not as many as a full SIPP. For instance, there's usually no option to own property or offshore funds or to invest in unquoted shares. This could be the best option if you have a smaller pension pot, as you can open one with a lump sum, and the charges are lower. You won't get any advice from the pension provider.

How do I manage my SIPP?

SIPPs are usually managed online or via an app. Some can be managed by phone or post, but you might have to pay more for one that isn’t managed digitally.

All SIPP providers are different and have varying rules, so you need to check the details to find out exactly what you need to do.

Managing your self-invested pension online is usually the easiest option. It works like online banking or share trading: you can buy and sell investments and monitor their progress with the click of a button.

You can read our full guide to managing your pension funds here.

Some investments cost more in fees than others - so check before trading.

What are the pros and cons of SIPPs?

Pros

Freedom to control your fund and invest how you like
Tax relief on your savings
Pass on your fund, free from inheritance tax

Cons

Money is locked in until you're at least 55 (57 from 2028)
Charges usually higher than with a workplace pension
You'll need to spend time and effort choosing and managing your portfolio

How much can I pay into a SIPP?

You can put as much money as you'd like into your pension, but there are three limits to the amount you can get tax relief on.

While you're earning, you can put in 100% of your earnings up to a maximum of £60,000 each year and qualify for tax relief. Above that, you’ll face a tax charge. This is also known as the annual allowance.

If you earn more than £260,000 a year, the amount you can put in tax-free gradually reduces. For every £2 earned over £240,000, the amount you can contribute reduces by £1 until the annual allowance reaches £10,000.

If you're not earning money, you can still put £2,880 a year into your pension and get tax relief of £720 added, which means you can add £3,600 a year to your pot free of income tax.

There used to be something called a lifetime allowance on your pension, but this has now been scrapped. However, if you accessed your retirement savings before April 6, 2023, the old rules still apply and you’ll need to pay a tax charge if your pot was worth more than £1,073,100.  

Finally, the amount you can pay in whilst still benefiting from tax relief drops dramatically as soon as you begin withdrawing money from your pension. Once you've started drawing on your SIPP, the annual limit immediately falls to £10,000.

Higher-rate taxpayers have to use a self-assessment form to claim their full allowance on a SIPP.”

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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.
How much you need to save to hit the lifetime allowance
How long it takes to hit the current lifetime allowance saving different amounts of money a year.

Assuming 5% annual growth in pension investments. Lifetime allowance on pensions is set to be withdrawn from April 6, 2023

What can I invest in through a SIPP account?

SIPPs allow you to invest in an extremely large number of shares, assets, trusts and more, but not every provider has the same range of offerings. Comparing the fund ranges on offer is one of the most important factors to consider when selecting a SIPP provider.

Whichever SIPP you choose, you should have access to;

  • Company shares

  • Unit trusts

  • Open-Ended Investment Companies (OEICs)

  • Commercial property and land

  • Real estate investment trusts

  • Offshore funds

You can seek independent financial advice to help you choose the right investment strategy and funds. If you invest without taking proper advice, you’re more likely to make poor decisions and have less protection if things go wrong.

SIPPs typically offer a much wider range of investment options than many other pensions.”

What fees do SIPP providers charge?

The costs can vary a lot, depending on how you invest and which SIPP provider you are using.

There's a range of charges you might expect to see. These include:

  • Annual management fees: the most common type of fee - this will either be a percentage charge of your entire pension pot each year or a fixed cost

  • Dealing charges: fees for buying and selling investments in your SIPP, usually based on how often and how many times you make trades

  • Annual administration charges: these are part of some accounts but not others. It’s either an annual flat fee or a percentage of your investment. You might see this being called a platform fee

  • Exit fees: charged if you decide to transfer your SIPP to another SIPP provider. This could equate to a lot of money depending on how many shares you have, so check carefully

  • Drawdown charges: these apply when you start taking money from your SIPP. There could be an initial set-up fee, plus ongoing charges, so check before you choose a provider

Before you start investing in a SIPP, make sure you do your research to determine what costs are involved. This can significantly impact what money you have when you retire, so it’s important to choose wisely and consider taking advice.

The cheapest SIPP will depend on how often you plan to make changes to your portfolio as well as what you invest in.”

What happens to my SIPP when I die?

Any money you have left in your SIPP can be passed on to your nominated beneficiaries, inheritance tax-free.

However, your loved ones may have to pay income tax depending on how old you are when you die. If you die before you’re 75, your beneficiaries will get your SIPP as an income-tax-free lump sum. If you’re older than that - things work a little differently.

Your beneficiaries will be given three options on how they can take the money if you die after the age of 75, each of which is subject to their current income tax rate:

  • As a lump sum 

  • As a regular income. This option is only offered to dependents

  • As periodic lump sums

SIPPs can be a good way to take control of your fund and benefit from tax relief too, but the charges can be higher than you'd get with a workplace pension. It's also important to thoroughly research where you invest and spend the necessary time managing it.

SIPP FAQs

Who is responsible for the performance of my SIPP?

You are. If you are not sure how to manage your SIPP, speak to an independent financial adviser.

When can I withdraw my SIPP?

You can usually withdraw it when you reach 55 (rising to 57 from 2028). Check with your pension company because its SIPP terms and conditions may set a different age.

How is my retirement income paid from a SIPP?

When you are 55, your pension company will contact you to ask if you want to keep paying into your SIPP or if you want to withdraw it. Read here for more.

Do I have to choose all of the funds in my SIPP?

Yes. However, most pension companies offer SIPPs that are built from a range of funds categorised by their level of risk and volatility. Find out more here.

Can I have more than one SIPP provider?

Yes, you can have more than one SIPP. If fact, many people have a SIPP or multiple SIPPs in addition to a workplace pension.

Can my employer pay into my SIPP?

Employers can choose to pay into a SIPP, but many won’t. Businesses have to set up workplace schemes under auto-enrolment laws, so many companies prefer to contribute to these instead. If you have a workplace pension, make sure to check whether your company offers any matching. This is when they pay extra money into your pension when you do. If matching is an option, you are likely to be better off increasing contributions rather than opening a SIPP for your money.

In depth guides to SIPPs

Find out more about how SIPPs work with our in-depth guides.
How to invest in a SIPP
How to invest in a SIPP
Is it ever too late to start a pension?
Is it ever too late to start a pension?
Can you transfer your pension?
Can you transfer your pension?

About the author

James Andrews
James has spent the past 15 years writing and editing personal finance news, specialising in consumer rights, pensions, insurance, property and investments

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