A simple guide to Self Invested Personal Pensions

‘SIPP’ stands for self-invested personal pension. As the name suggests, a SIPP is a type of personal pension that allows you to make decisions for yourself about how your retirement savings are invested.

It’s classed as a tax wrapper, which means that it’s an account that ‘wraps’ around your investments and protects you from tax in some way.

A SIPP is not the same as an occupational pension scheme, which is set up and run by an employer.

SIPPs work in a similar way to standard personal pensions – they are invested in stocks, shares or other investable assets to give you an income when you retire. The main difference is that with a SIPP, you get greater flexibility over your investment options, including the ability to make changes to your investments as often as you want. With a personal pension, decisions about how your pension is invested, and how often you can contribute, may be taken away from you.

There are a few distinct advantages to SIPPs:

• You can gain maximum flexibility. With workplace or personal pensions, the investment options you have may be limited, and it’s not always easy to see what you have, where it’s invested, and what the plan is for your savings as you age. With a SIPP, you can be in control, although it’s important to note that not all SIPPs are the same; some offer complete flexibility, while others offer a more limited choice.
• Contributions to SIPPs qualify for tax relief. This means that everytime you contribute, your money will be boosted by an additional 20% payment from the government. For example, if you pay in £80, the government will automatically top your payment up with an extra £20, making the total £100.
• You’ll have flexibility over how you access benefits at retirement, and how any remaining funds are passed to your loved ones when you die.

You may find a SIPP meets your goals if any of the following apply to you:

• You’re self-employed
• You’re already paying into a workplace pension but want to put additional savings aside for your retirement, and grab a 20% government top-up
• You have old workplace/personal pensions scattered around and want to consolidate them
• You want to boost your spouse/partner’s pension pot in a tax-efficient way
• You want to manage your own pension but still have your employer contribute
• You don’t have any choice over your company pension and the fees/returns are poor
• You want to choose the exact stocks, bonds, funds or ETFs your pension is invested in
• Portfolio performance matters to you and you want to be able to shop around
• You want a cheaper option than a regular personal pension
• You want a tax-efficient savings account you can take a lump sum from when you reach 55 (57 from April 2028)

A SIPP might not be for you if you don’t want the responsibility of making your own investment decisions, and you’d rather leave the selection and management of funds, shares and other investment assets to a professional.

It might also not be right for you if you’re worried that having the option to reduce or pause contributions could result in you not saving enough for retirement.

Yes. You can open and pay into a SIPP if you already hold other pensions. That includes workplace pensions and the state pension.