Self-invested personal pensions (SIPPs)

A self-invested personal pension (SIPP) is a pension ‘wrapper’ that allows you to save, invest and build up a pot of money for when you retire. It is a type of personal pension and works in a similar way to a standard personal pension. The main difference is that with a SIPP, you have more flexibility with the investments you can choose.

With a SIPP, you choose and manage your own investments or pay an authorised financial adviser to help you.

As you’re in control, you can make changes and additions to your investments as often as you want.

SIPPs can offer much wider investment options than other pension types.

The wider investment options can allow you to invest in a wide range of assets, including:

• company shares (UK and overseas)
• collective investments – such as open-ended investment companies (OEICs) and unit trusts
• investment trusts
• property and land – but not most residential property.

This list isn’t exhaustive – different SIPP providers offer different investment options.

You can’t use a SIPP to invest directly in residential property. But it might be possible to invest in commercial property, such as offices.

Or, you can invest indirectly through certain collective investments, such as real estate investment trusts (also known as REITs).

Not all SIPP providers accept this type of investment and restrictions on personal use apply.

Unless you’re experienced in investment management, it’s important to use a regulated financial adviser to help choose and manage your SIPP investments.

If you invest without advice, you’re less likely to be protected if things go wrong.

You control how much you save and how often.

You could choose to make regular contributions or pay in lump sums as and when you choose. An employer may also make contributions to your pension.

Contributions to SIPPs qualify for tax relief. This means that your contributions are boosted by a payment from the government.

Contributions you make as the member receive basic-rate income tax relief at source, subject to certain conditions.

For example, if you contribute a lump sum of £2,000 into your SIPP, you’ll get tax relief of £500 from the government, so a total of £2,500 is invested in the SIPP.

If you're a higher-rate (40%) taxpayer, you can also claim extra tax relief of up to £500 through your self-assessment tax return, and up to an extra £625 if you’re an additional-rate (45%) taxpayer.

The rates of tax relief for Scottish residents are slightly different.

There are limits to how much you can contribute, and how much tax relief you can get on this, in any one year.

This shouldn’t normally be a problem, but your provider can let you know what your options are.

You can often change your contributions online or by completing a form.

Yes. You can often do this online but you might need to contact your pension provider if you need to complete a form.

Yes, you can have both. If your employer matches any extra contributions you pay into your workplace pension, it’ll normally be better to put your money in there first. That’s because the extra employer contributions help to boost your savings.

If you’re thinking of setting up a SIPP so you can make extra contributions outside of your workplace pension, it’s a good idea to compare the costs and charges, as it may be cheaper to contribute to your existing workplace pension.

Yes, SIPPs have been registered pensions since 2006.

SIPP contributions are measured against your annual allowance in the same way as other defined contribution pensions.

SIPPs vary – from ‘low-cost’ with fewer investment options, to ‘full’ SIPPs with wider and more complicated investment options and higher charging structures.

Fees might include:

• set-up charges
• ongoing charges figures for the investments
• platform or service charges (to cover the administration of your pension)
• annual administration charges (some providers combine the investment and administration charges)
• dealing fees for investing – with some fees fixed and others percentage-based, depending on the provider.
  

Before taking out a SIPP, it’s important to shop around and compare charges. And to make sure you understand the potential effect the charges might have on your investment returns.

From the age of 55 (rising to 57 in 2028), you can choose to begin taking money from your pension pot through one of the options listed below, or a combination of them.

The most suitable option for you will depend on your age and personal circumstances.

Your main options are:

1. Keep your pension savings where they are – and take them later.
2. Use your pension pot to buy a guaranteed income for life, also known as a lifetime annuity. Or you can buy an income for a fixed term, also known as a fixed term annuity. The income from either is taxable, but you can normally choose to take up to 25% of your pot as a one-off tax-free lump sum at the start.
3. Use your pension pot to give you a flexible retirement income. This is also known as pension drawdown. You can take the amount you’re allowed to take as a tax-free lump sum – normally up to 25%. You can then use the rest to give you a regular taxable income.
4. Take a number of lump sums. Usually, the first 25% of each cash withdrawal from your pot will be tax-free. The rest is taxable.
5. Take your pension pot in one go. Usually, the first 25% will be tax-free and the rest is taxable.
6. Mix your options – choose any combination of the above, using different parts of your pot or separate pots.

There is a lifetime limit on the total amount that can be withdrawn tax-free, known as the ‘lump sum allowance’ (LSA). For 2024/25 this is set at £268,275 for most people. The rules can be complex, so you might want to speak to a regulated financial adviser if you think you could be affected.

Anyone aged under 75 in the UK can start a SIPP, and there are no age limits for transferring other pension pots into one.

However, SIPPs are generally more suitable if you understand financial markets and are prepared to spend time researching and actively managing your investments. Or can afford to pay a financial adviser to do this for you.

If you have access to a workplace pension, it usually makes financial sense to put your money into that first, especially as your employer contributes too.

Remember that investments can fall as well as rise. So if you want to manage a SIPP yourself, you also need to be prepared to take responsibility for your decisions if things go wrong.

If this doesn’t sound like you, or if you’re in any doubt, speak to a regulated financial adviser who’ll be able to advise whether SIPPs are suitable.

They can also help you choose one and manage the SIPP funds.

• go direct to the firms that sell them, compare their products and make your own decision about which one to choose. Be aware that if you make the wrong decision and the product you choose turns out to be unsuitable, you’re less likely to be able to make a complaint. Check the Financial Services Register (Opens in a new window) to be sure the firm is registered and safe. 
• use a regulated financial adviser who will compare products on the market and make a recommendation personal to you.