SIPPs Explained
SIPPs may appeal to experienced investors, the self-employed and savers who want more control over their pension.
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SIPPs Explained: How Self-Invested Personal Pensions Work
SIPPs may appeal to experienced investors, the self-employed and savers who want more control over their pension. However, they are not automatically better than other pension arrangements. Fees, investment risk and the time required to manage the account should also be considered.
This guide explains how SIPPs work, with SIPPs explained in straightforward terms, including pension tax relief, investment options, transfers and who they may suit.
What Is a SIPP?
A SIPP is a defined contribution pension that you arrange with a pension provider. Like other defined contribution pensions, it builds a retirement pot through contributions, tax relief and investment performance.
The main difference is the level of investment choice available. Depending on the provider, a SIPP may allow you to invest in:
Investment funds
Individual company shares
Exchange-traded funds
Government and corporate bonds
Investment trusts
Commercial property
Cash and other permitted investments
You can choose your own investments, select ready-made portfolios or use a regulated financial adviser to recommend and manage an investment strategy.
The value of a SIPP will depend on contributions, investment performance, charges and how benefits are eventually taken.
Like other pensions, a SIPP is designed for retirement and cannot normally be accessed until the minimum pension age.
How SIPPs Differ From Workplace Pensions
Most workplace pensions are arranged by an employer and commonly place members into a default investment fund. Contributions may come from both you and your employer, and some employers may pay more if you increase your contribution. Check your scheme rules.
You normally open a SIPP yourself. You select the provider; decide how much to contribute and choose from the investments it offers.
SIPP and workplace pension comparison
| Feature | SIPP | Workplace pension |
|---|---|---|
| Who arranges it? | Usually the individual | The employer |
| Employer contributions | Not normally paid automatically | Usually available |
| Investment choice | Often extensive | Commonly more limited |
| Default investment option | Depends on the provider | Usually provided |
| Management responsibility | Often greater | Generally lower |
| Charges | Vary by platform and investments | May be subsidised or negotiated |
| Feature | Who arranges it? | Employer contributions | Investment choice | Default investment option | Management responsibility | Charges |
|---|---|---|---|---|---|---|
| SIPP | Usually the individual | Not normally paid automatically | Often extensive | Depends on the provider | Often greater | Vary by platform and investments |
| Workplace pension | The employer | Usually available | Commonly more limited | Usually provided | Generally lower | May be subsidised or negotiated |
A workplace pension may provide valuable employer contributions that would be lost if you stopped paying into it. For that reason, opening a SIPP does not necessarily mean replacing your workplace scheme.
Can You Have a SIPP and Workplace Pension?
Yes. You can usually contribute to both a workplace pension and a SIPP, provided your total pension savings remain within the relevant tax rules.
You might continue paying enough into your workplace pension to receive the maximum employer contribution while using a SIPP for additional retirement savings or a wider investment choice.
How many SIPPs can I have?
There is no general limit on the number of SIPPs or other registered pension schemes you can hold. However, your pension contributions are assessed collectively for annual allowance purposes, and having multiple SIPPs can increase administration and charges.
SIPP Tax Relief and Contribution Limits
Eligible personal contributions to a SIPP normally qualify for tax relief. Many SIPPs operate using relief at source, meaning if you contribute £80, your provider will usually claim £20 from HMRC, creating a £100 gross contribution. Higher- and additional-rate taxpayers may be able to claim further tax relief.
SIPPs Tax Relief
Personal contributions normally qualify for tax relief up to the higher of:
100% of your relevant UK earnings
£3,600 gross if you have little or no relevant UK earnings
Your contributions also count towards the annual allowance. The amount available will depend on your circumstances, and a lower allowance can apply in some cases
Are SIPPs Tax Free?
No. While contributions may receive tax relief and investments can generally grow free from UK Income Tax and Capital Gains Tax, withdrawals are not usually tax-free.
You can normally take up to 25% of your pension tax-free, subject to your available lump sum allowance. Any remaining withdrawals are generally taxed as pension income.
Investment Options and Charges
A wider investment range is one of the main reasons people choose a SIPP. Depending on the provider, you may be able to invest in funds, individual shares, bonds, exchange-traded funds (ETFs), investment trusts, commercial property and other permitted assets.
The investment range varies between SIPP providers. Some non-standard investments, including commercial property, can be less liquid and more difficult to value or sell than mainstream investments. This could affect how quickly you can access your money or exit an investment when required.
This flexibility enables you to build a portfolio that reflects your retirement goals and attitude to investment risk. However, greater choice does not guarantee better results. Investment values can rise and fall, and choosing unsuitable or poorly diversified investments could reduce the value of your retirement savings.
It's also important to understand the charges associated with a SIPP, as platform fees, fund costs and dealing charges can all affect the long-term value of your pension.
SIPP vs ISA
A SIPP is designed for retirement. Contributions may receive pension tax relief, but the money is normally inaccessible until the minimum pension age. An ISA does not provide pension tax relief, although withdrawals are generally tax-free and can usually be made at any time.
SIPP vs ISA Comparison
| Feature | SIPP | ISA |
|---|---|---|
| Tax relief on contributions | Usually available | Not available |
| Tax on investment growth | Generally sheltered | Generally sheltered |
| Access | Restricted until pension access age | Normally available at any time |
| Tax on withdrawals | Usually partly taxable | Generally tax-free |
| Employer contributions | May be possible in some circumstances | Not available |
| Feature | Tax relief on contributions | Tax on investment growth | Access | Tax on withdrawals | Employer contributions |
|---|---|---|---|---|---|
| SIPP | Usually available | Generally sheltered | Restricted until pension access age | Usually partly taxable | May be possible in some circumstances |
| ISA | Not available | Generally sheltered | Normally available at any time | Generally tax-free | Not available |
The two products can complement each other. An ISA may support accessible medium- or long-term savings, while a SIPP is specifically intended to fund retirement.
Who a SIPP May and May Not Suit
A SIPP can be a flexible way to save for retirement, but it isn't the right choice for everyone. Whether it's suitable will depend on your investment experience, retirement goals and how involved you want to be in managing your pension.
A SIPP may be worth considering if you:
-
Feel comfortable making investment decisions
-
Have several pension pots you want to manage together
-
Are self-employed or making additional personal contributions
-
Want professional advice alongside greater investment flexibility
-
Are prepared to monitor performance, risk and charges
A SIPP may be less suitable if you:
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Prefer a simple pension with ready-made investments
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Do not want ongoing investment responsibility
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Have a relatively small pension that could be affected by fixed fees
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Would lose valuable workplace contributions
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Are uncomfortable with investment risk
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Hold pensions with guarantees or protected benefits
There is no single pension that is right for everyone. Comparing your existing arrangements, retirement objectives and attitude to investment risk can help you decide whether a SIPP is likely to be the right choice.
How to Transfer Existing Pensions Into a SIPP
You may be able to transfer old workplace or personal pensions into a SIPP. This could simplify administration, provide a wider investment range or make charges easier to understand.
The process normally involves:
1. Reviewing the pension you are considering transferring.
2. Comparing its charges, investments and benefits with the SIPP.
3. Applying to the new provider.
4. Allowing the providers to complete the transfer.
5. Selecting investments once the money reaches the SIPP.
Before transferring, check whether your existing pension includes valuable benefits, such as guaranteed annuity rates, protected tax-free cash or a protected pension access age, as these could be lost.
This is particularly important if you're transferring a defined benefit pension, where you would usually give up a guaranteed retirement income. Investment values may also change while the transfer is being completed.
If a pension includes safeguarded benefits, such as a defined benefit entitlement or guaranteed annuity rate, regulated financial advice may be legally required before the provider can transfer benefits above the applicable statutory threshold. A transfer would normally involve giving up the safeguarded benefit.
Access Age and Pension Withdrawal Options
You can normally access a SIPP from age 55, rising to 57 from 6 April 2028, unless you have a protected pension age or qualify under limited ill-health rules.
Depending on the provider, retirement options may include:
Flexi-access pension drawdown
Buying an annuity
Taking lump-sum withdrawals
Withdrawing the whole pension
Combining more than one option
With drawdown, you can usually take some tax-free cash and leave the remainder invested for flexible withdrawals. This retains investment potential but also carries the risk that the fund could fall in value or run out.
Taking taxable income flexibly may trigger the Money Purchase Annual Allowance and restrict future tax-relieved contributions. The tax consequences should therefore be considered before accessing a SIPP, particularly if you are still working.
Risks of Choosing Your Own Investments
Managing your own SIPP may involve deciding:
How much risk to take
How to diversify across investments
Whether to use active or passive funds
How often to review the portfolio
How investment risk should change as retirement approaches
How withdrawals may affect the remaining fund
Holding several investments does not automatically mean your money is spread effectively. Different funds can invest in many of the same underlying assets, so it's important to understand how your investments work together.
Some SIPPs may also provide access to complex or higher-risk investments. You should understand what you are buying, the potential for loss and whether the investment is suitable for retirement savings.
Comparing SIPP Fees and Platform Charges
SIPP charges vary between providers and may affect the long-term value of your pension. Before choosing a provider, it's worth understanding what fees apply and how they're charged.
| Charge | What to look for |
|---|---|
| Platform or administration fees | May be a fixed annual fee or a percentage of your pension value. |
| Fund management charges | Ongoing costs for the investments you hold. |
| Share-dealing fees | Usually apply when buying or selling individual investments. |
| Transfer or withdrawal charges | Some providers charge for transferring or accessing your pension. |
| Adviser fees | May apply if you receive regulated financial advice. |
| Specialist investment charges | Additional costs may apply for assets such as commercial property. |
| Charge | Platform or administration fees | Fund management charges | Share-dealing fees | Transfer or withdrawal charges | Adviser fees | Specialist investment charges |
|---|---|---|---|---|---|---|
| What to look for | May be a fixed annual fee or a percentage of your pension value. | Ongoing costs for the investments you hold. | Usually apply when buying or selling individual investments. | Some providers charge for transferring or accessing your pension. | May apply if you receive regulated financial advice. | Additional costs may apply for assets such as commercial property. |
Some providers charge a percentage of your pension value, while others apply fixed fees. Which offers better value depends on the size of your pension, how often you trade and the investments you choose.
The cheapest SIPP is not always the most suitable. Investment choice, service, withdrawal options and provider support should all be considered alongside cost.
When to Seek Professional Advice
The investment choice provided by a SIPP can be valuable, but it may also make decisions more complex. Regulated financial advice can help you determine whether the flexibility and costs are appropriate for your circumstances.
You may benefit from advice if you:
Are unsure whether a SIPP is suitable
Want to compare a SIPP with your workplace pension
Are considering transferring existing pension pots
Hold pensions with guarantees or protected benefits
Need help choosing and diversifying investments
Want to understand contribution limits and tax relief
Are approaching retirement and reviewing withdrawal options
Have several pensions or wider investment assets
My Pension Expert can review your existing arrangements, retirement objectives and attitude to risk before recommending an appropriate strategy. Our advisers can help you compare providers, understand charges and decide whether a SIPP should form part of your retirement plan.
