A self-invested personal pension (SIPP) puts the power of a pension in your own hands and let you invest with more freedom. Find out the SIPP rules and how SIPPs work.
Self-invested personal pensions (SIPPs) are a type of private pension where you manage the investments yourself. Used correctly, a SIPP is an excellent long-term wealth building tool that could leave you with a bigger retirement pot – or even an earlier retirement.
However, to make the most of a SIPP, you’ll need to understand how they work. And be prepared to research and make your own retirement portfolio investmens.
What is a self-invested personal pension?
A SIPP, or self-invested personal pension, is a type of private pension. With SIPPs, you get full control over the account and the investments held within it. It’s a responsbility that can be both a blessing and a curse.
SIPP structure
In their structure, SIPPs work largely in a similar way to defined-contribution (DC) pension schemes . You pay in money into a pot that’s invested, with the aim of growing that pot until you retire.
Using a SIPP means you get to benefit from all the tax advantages of a regular private pension. The key difference is that you get more choice and control over this account. And armed with the right knowledge, a SIPP can be a fantastic asset to your long-term financial planning.
SIPP pension rules
Here’s an overview of the key SIPP rules you should know about:
You can only access your pot once you reach 55 (rising to 57 in 2028)
You’re able to contribute up to £60,000 each year (or 100% of your salary)
Contributions made will get a tax-relief top up from the government (20% to 45% depending on your tax bracket)
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
What’s the difference between a SIPP and a personal pension?
SIPPs are a subset of personal pensions. So they’re in the same family but there are a few key differences between SIPPs and standard personal pensions.
Standard personal pensions
Suitable for those with less experience in investing.
The pension provider manages your investments on your behalf. You can usually choose the broad investment strategy.
Some personal pensions can be more expensive because of the fund management costs.
The specifics of your portfolio are managed by the fund’s investment experts.
You have less control over the portfolio.
Charges can be lower than SIPPs because investments are made as bulk orders.
Self-invested personal pensions
Suitable if you have some investing knowledge or feel comfortable making investment decisions.
Management of your pension investments is down to you.
Choose your own investments; you can typically choose from a much wider and more sophisticated range of investments than with other personal pensions.
You can manage your investments yourself, hire an investment adviser or use a provider’s services.
Some SIPPs can be more expensive than personal pensions but there are now low-cost cheaper options.
Who should consider a SIPP?
In general, SIPPs tend to be better suited for more experienced investors or those making larger or more complex contributions who want more flexibility.
SIPPs are particularly useful for anyone who’s self-employed that can’t rely on a workplace pension. If you’re your own boss, you need to take care of your retirement plans and a SIPP is a great tool to help.
If managing your own retirement portfolio will keep you up at night, a SIPP may not be the best option. One of the main advantages of a SIPP is getting to manage and pick investments yourself. However, there are still ways to get a managed SIPP or professional advice – you always have options.
Most SIPPs are managed using digital investment platforms and some of the best trading platforms now offer the option to hold a SIPP. But you’ll need to use a platform you can find your way around because if you’re in control, you’ll want to make sure you feel comfortable using that provider.
What are the advantages of saving into a self-invested personal pension?
SIPPs share many of the same advantages as saving into any personal pension, including:
Retirement options. They provide a vessel for those without a workplace pension, or those who want to save more than they can in a workplace pension, to save for retirement.
Tax relief. Contributions into a SIPP qualify for tax relief. You’ll usually receive basic-rate (20%) income tax relief at source (meaning that the tax you would have paid on each contribution is added straight into your pension pot). If you are a higher-rate (40% or 45%) taxpayer, you can claim the extra via your tax return or by applying directly for a tax refund.
Investment options. The investment choice you can get with a SIPP gives you greater control and the flexibility to ensure your retirement pot is invested exactly how you want.
Unique benefits. SIPPs have some unique features like being able to use your SIPP to invest in commercial property.
What should I look out for when choosing a SIPP?
If you’ve weighed up your options and are certain that you want a SIPP, there are a few things to think about, including:
SIPP type. The type of SIPP you want; low-cost, full access or robo-advisor (we explain the differences between each type below).
Platform fees. The charges for opening and maintaining an account (most platforms have some sort of monthly or annual fee).
Investing costs. Any costs or fees to buy or sell investments.
Minimum contributions. Any restrictions around contributions like minimum monthly deposits or lump sums.
Penalties. If you can pause, restart or defer payments into the accont, without penalty.
Investment choice. The range of investment options available suit your preferences, appetite for risk and investing goals.
Support. The guidance and support that the provider offers to help plan for your retirement.
Accessing the pot. Your options for accessing and withdrawing funds once you reach retirement.
Transfer costs. Any costs or fees if you decide to transfer your SIPP elsewhere.
Communication. How you’ll receive updates about your investments.
Portfolio management methods. Whether you can manage your investments by phone or post, as well as online.
If you’re not sure where to start with your SIPP, you may want to seek independent financial advice. There will usually be a charge for this, but it will save you time and effort and help make sure you select the right path for your specific circumstances.
What are the different types of SIPP?
There are 3 broad categories of SIPP, though the boundaries can sometimes blur.
1. Low-cost DIY SIPPs
While all SIPPs are DIY (do it yourself) to a certain extent, SIPPs with the lowest charges tend to leave you completely to your own devices.
While some may offer online tools or apps to make portfolio management easier, you typically won’t get any investment guidance or advice.
The range of investment assets available will tend to be fairly mainstream; including popular types of investments you’d access with an investment account – like stocks, bonds, exchange-traded funds (ETFs) and investment trusts.
Pros of low-cost SIPPs:
The clue is in the name – they’re likely to be your cheapest SIPP option.
You have full control over the management of your investments.
There a now quite a few low-cost SIPPs to choose between.
Cons of low-cost SIPPs:
No support or advice on what to invest in.
Sometimes a smaller range of investments.
You’ll need to have the time to manage it yourself.
2. Robo-advisor SIPPs
With these platforms you’re asked a series of questions about your goals, appetite for risk and investment preferences, and a “robo-advisor” will allocate you a suitable portfolio of investments and manage them on your behalf.
They can be a good half-way house between a standard personal pension, where you have very little control over where your money is invested, and a fully DIY SIPP. They do tend to be more expensive than low-cost DIY SIPPs though. And, despite the name, they’re not a substitute for full, personalised financial advice.
Pros of robo-advisor SIPPs:
Offer limited (automated) support to help you make investment choices.
May be a good halfway option between a full DIY SIPP and a standard personal pension.
Can still be quite a cheap SIPP option.
Many robo-advisor SIPPs come with excellent apps.
Cons of robo-advisor SIPPs:
Typically more expensive than DIY SIPPs.
Sometimes have quite high minimum contributions.
“Robo-advice” is not a replacement for tailored advice from a regulated financial adviser.
3. Full SIPPs
These offer the widest choice of investments, often including commercial property and even off-shore funds. They’re typically more expensive than other options though, so are usually best for people with large pots and who want access to less-mainstream, more sophisticated investments.
Part of the reason for the higher costs is that you usually have access to a team that can help you make investment decisions and may be able to help with the administration of more complex investments.
Pros of full SIPPs:
Backed by support and advice from staff at provider.
Wider range of investments than other types of SIPPs.
Cons of full SIPPs:
Can be expensive.
Investments more complex than most people are likely to need.
If you’re looking for a full SIPP, backed by support and advice by the firm, providers include Embark Pensions, Rowanmoor and Suffolk Life.
How can I open a self-invested personal pension?
To open a SIPP, you can either choose a provider and set your pension up yourself (taking into account the things to look for in a personal pension that we’ve outlined above), or ask a regulated financial adviser to recommend a provider for you. This will come at extra cost, but reduces the time you need to spend researching and comparing and can help ensure you make the right choice.
Plus, if the product a financial adviser recommends turns out to be unsuitable, you’ll be able to complain (initially to the adviser or, if that fails, to the Financial Ombudsman Service). If you choose and open a SIPP yourself, and it turns out to be a poor choice, you’ve got limited options for recourse. Many financial advisers are also able to help you manage the investments in a SIPP on an ongoing basis.
How much do SIPPs cost?
You’ll pay for your SIPP via a range of fees and charges. These are typically (though not always) deducted from your pot rather than you paying fees on top of your contributions. Because the size of your pot will be changing constantly as your investments rise and fall in value, this can make it hard to fully grasp the impact of fees.
But, in practice, high fees can cost you dear and make a big difference to how much you have in your pot when you come to retire, so it’s worth trying to compare their likely impact on your pension before you take out a SIPP. Different platforms apply different types of charge.
Annual management charges
At a minimum, you’ll need to pay an annual management charge, which may be levied as either of the following (or both):
A fixed annual administration fee, typically a few hundred pounds.
An annual platform fee, charged as a percentage of the amount you’ve invested (typically between 0.25% and 0.75%, though this can be higher).
Whether a fixed or a percentage fee is better for you will likely depend on the size of your pot (percentage fees might be better for those with smaller pots, and vice versa).
Bear in mind too that some providers charge tiered platform fees, depending on how much you have invested. For example, you might pay 0.5% on the value of your pot up to £100,000, and 0.25% on amounts above this.
Other charges
Other fees to look out for, depending on the specific provider and what you want to do with your investments, include:
Set-up charges.
Fund charges if you invest in funds, to cover the management costs; the percentage charge will vary according to the specific fund.
Trading fees that apply each time you buy or sell investments (these may be fixed or a percentage).
Transfer-out fees; you may incur these if you move your pot to another scheme.
Withdrawal fees, which sometimes apply when you start taking money out of your pot.
How much can you save into a SIPP?
There is technically no limit on how much you can pay into a SIPP overall. However, there is a limit on how much across all of your pension pots qualifies for tax relief:
You can benefit from at-source tax relief on up to £60,000 of contributions per year across all of your pension pots, or 100% of your annual salary if this is less.
There used to be a lifetime allowance that was recently abolished. However, the government may decide to reintroduce this at another time.
Where is the money in a SIPP held?
The money in a SIPP is held in a range of investments that you select.
What investments can I hold in my SIPP?
Most mainstream investment products can be kept in a SIPP, including:
You can also hold cash in a SIPP, although you won’t be paid interest on this at the same rate you would get with a traditional cash savings account.
Some people increase cash holdings in their SIPP as a way to reduce risk as they approach retirement. Again, they won’t get as much in interest as they would have with a savings product. However, this might not be a big problem, as the cash still would have been subject to the tax top-up when they paid it in. In other words, by this time, the money may have already done the work it was meant to do.
Our expert says: What’s the best type of SIPP to use?
"The best type of SIPP to use will largely depend on what you’re looking to do with your retirement savings. However, like ordinary investing, two key areas to think about are the fees and your investment choice.
It’s now possible to get a low-cost SIPP that provides excellent value and lower costs will make sure that your money goes as far as possible, maximising the potential power of compound interest over time. Also, for most people, investment choice will be important because this is likely to be a major factor in why you want to open a SIPP in the first place.
Being able to choose and control the investments is a key benefit of a SIPP so you may not want to limit yourself by picking a platform that’s restrictive in investment options. Understanding how you want to invest your retirement pot is the best starting point when trying to find the right SIPP for your goals."
Yes, it’s fine to pay into both a personal pension and workplace pension simultaneously. In fact, you can have as many workplace pensions as you have jobs, and as many personal pensions as you want. We wouldn’t recommend opening too many though, as it can make it hard to keep track.
If you do have a workplace pension (or more than one), it’s usually better to pay into this as a priority, as you’re likely to also benefit from employer contributions.
When can I access the money held in a SIPP?
Like most other personal or workplace pensions, the money held in a SIPP can usually be accessed from age 55 (and not before, without incurring penalties). This is due to rise to age 57 in 2028.
What happens to my self-invested personal pension when I retire?
By default, absolutely nothing. Regardless of when you consider yourself officially “retired”, unless you take action to access it, the money in your SIPP will stay invested and (hopefully) carry on growing in value.
If you want to make use of the money in your pension, you have a few options for how you receive it.
How do you withdraw money from a self-invested personal pension?
SIPP withdrawals are the same as for any defined contribution (DC) pension. You can choose to take out 25% of it tax-free.
Beyond this, you have a few options; after the initial tax-free 25%, any other withdrawals are liable for income tax.
Buy a guaranteed income for a fixed term or for life, known as an annuity.
Leave most of your money invested, using it to draw a regular income – known as pension drawdown.
Take the whole lot out in one go. This is typically only likely to be a good option if your SIPP pot is relatively small and you have other ways to fund your retirement, not least because you’ll be taxed on the amount that exceeds 25%.
Take a number of smaller lump sums; in this case, rather than getting 25% of the full amount tax-free at the outset, you’ll usually receive the first 25% of each lump sum withdrawal tax-free.
Mix and match some or all of the approaches above.
What happens to the money in my SIPP if I die before withdrawing it?
If you die before getting the chance to withdraw all or some of your pension then it can be inherited by your beneficiaries. They may need to pay tax on the SIPP, depending on how old you are when you die.
If you die under the age of 75: Those inheriting the pension will get it all tax free.
If you die over the age of 75: Your beneficiaries can withdraw the full amount at once, take it as a regular income, or take lump sums whenever they like. In all of these cases, it’s subject to income tax at their rate.
Pros and cons of a SIPP
Pros
Flexibility over when and how much you put into your pension
Choose exactly how you want your pension invested
You’ll benefit from tax relief on the money you pay in.
Investment support or advice is available via robo-advisor or full SIPPs
Cons
Can cost more than standard personal pensions
It can be a risky responsbility to manage your own retirement portfolio
If you pick a provider or invest without regulated financial advice, you won’t be able to complain if you make unsuitable choices
Bottom line
If you don’t have a workplace pension (perhaps self-employed), or want to contribute more towards your pension than your employer’s scheme allows, a SIPP could be worth considering.
Unlike standard personal pensions, using a SIPP means you get to manage the account and the investments yourself. This can be a huge advantage for those who are comfortable doing so, but remember it is also a fairly heavy burden of responsibility to manage your own retirement portfolio.
Frequently asked questions
As with all private pensions, you get a nice little top up from the government when you pay into a SIPP. A basic rate taxpayer (that’s someone that pays 20% tax) only pays in £80 of every £100 that goes into your pension pot. Higher rate taxpayers pay in £60 for every £100 paid in. As well as this, you’ll get to withdraw the first 25% tax free when it comes to withdrawal (from the age of 55). As with other tax wrappers such as ISAs, the money you put into a SIPP can grow without you having to pay capital gains tax or income tax.
Yes. In fact, that’s the whole point of opening a SIPP. Unlike standard personal pensions, you have control over how your money is invested. You can also pay a financial adviser to help you manage your investments.
Yes. SIPPs have been registered pensions since 2006. Pension schemes must be registered with HMRC to benefit from the tax reliefs available for pensions.
Neither is better or worse; it’s all down to your personal choice. A stakeholder pension is a variant on a standard personal pension, but with strict government rules on how it’s managed. Stakeholder pensions are likely to have lower costs than SIPPs, but you’ll have far few investment options and won’t be able to manage investments directly.
This isn’t quite comparing apples with apples, as both SIPPs and ISAs offer tax breaks, though they work slightly differently. With SIPPs, you get tax relief on the money you pay in, but will need to pay tax on most of the money when you take it out. With stocks and shares ISAs, you don’t receive any tax relief on contributions, but interest and withdrawals are tax-free. The limits on how much you can save and benefit from tax breaks is also different; with ISAs the annual limit is £20,000, whereas it’s £40,000 for SIPPS (or 100% of your earnings, if this is lower). Ultimately, though, SIPPs and ISAs are likely to serve different purposes. With some exceptions, money held in ISAs can usually be accessed as you need it, whereas money held in SIPPs can’t be accessed until age 55. As such, there may be benefits to splitting your money across both product types.
If you’re withdrawing an income from a SIPP and HMRC has said you need to complete a tax return, you will need to declare SIPP income on your tax return along with any other income. If you haven’t yet retired and started drawing money from your SIPP and you are a basic rate (20%) taxpayer, you don’t need to declare your SIPP on your tax return or do anything else to claim back the tax (it will be automatically added to your pension pot). However, if you’re a higher-rate tax payer and complete a tax return, it’s in your interests to declare your SIPP on your tax return in order to claim back the additional tax. If you don’t complete a tax return, you can apply to claim it directly from HMRC.
Sort of. It’s not quite “backdating”, as you can’t retrospectively benefit from the returns you would have made by investing earlier. But if you paid less than your annual pension allowance (currently £40,000) in 1 or more of the previous 3 years, you can make a one-time SIPP contribution of more than £40,000 to make up the shortfall from previous years. The maximum amount can’t be more than your maximum earnings that year, though, and will be dependent on how much you’ve already contributed to any other pension pots.
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. Keep in mind that the tax treatment of your pension and investments will depend on your individual circumstances and may change in the future. Capital at risk.
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George is a deputy editor at Finder. He has previously written for The Motley Fool UK, Nasdaq, Freetrade, Investing in the Web, MoneyMagpie, Online Mortgage Advisor, Wealth, and Compare Forex Brokers. He's focused on making personal finance and investing engaging for everyone. To do this he draws from previous work and his Level 4 Diploma for Financial Advisers (DipFA), sharing what he’s learnt. When he’s not geeking out about money, you’ll find him playing sports and staying active. See full bio
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