Everything you need to know about SIPPs

Your pension could be the largest asset you own in your lifetime, after your home. It’s worth taking the time to understand the different options available to you.

A SIPP allows you to gain greater control over your retirement funds. With a 20% government top-up on your contributions, and thousands of ways to invest, many people find SIPPs work better for them than traditional private pensions.

Reasons to use

• Flexibility and control over your pension savings
• Huge choice of investment options
• Tax benefits: 20% top-up from the government on your contributions
• Can be used to consolidate existing pensions
• Flexibility over contributions incl. ability to pause or increase payments
• Can be held alongside or instead of a workplace pension

Reasons to avoid

• Too much choice can be confusing
• Taking control of your own pension without taking advice could result in solutions not ideal for your personal circumstances
• The ability to pause contributions could lead to an insufficient or disappointing pension total
• As with all investments, funds can go down as well as up

‘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 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 on 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 various 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 𝘳𝘦𝘢𝘭𝘭𝘺 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.

The responsibility for setting up a SIPP sits with each individual investor. You (or your financial adviser) will need to choose a provider, open a SIPP account by completing the form on their website, and then decide which assets you want to invest your savings into.

Some, such as Fidelity, AJ Bell, and Bestinvest, offer vast numbers of options – thousands of different stocks, shares, funds and other investable assets – to choose from. Others, such as Penfold will offer a more reduced range of ready-made portfolios, which are designed to guide those struggling with what to choose into an appropriate choice, matched to their specific risk profile or stage of life.

You will also have flexibility over the amount and frequency of your contributions with a SIPP. That means, with most SIPPs, you are free to change the amount you save on a regular basis, add lump sum contributions when you have them, or take a break from saving if you need to.

The current rules around SIPP withdrawal mean that you have to be at least 55 to start taking money from your SIPP. This minimum will rise to 57 in April 2028.

Once you reach that age, you can start withdrawing the funds in your SIPP, even if you're still working and earning.

Currently, you can draw a maximum of 25% from your pot tax-free, up to a maximum of £268,275 in most cases. The remaining 75%, when you withdraw it, is then taxed at the same rate as the income tax you’d pay. These are the same conditions that you'll find applied to drawing down an income from a workplace pension.

You can take your pension all in one go if you wish, or you can take it in smaller, incremental or regular amounts. Alternatively, you could leave it invested until a time when you feel you’ll have greater need for it.

It’s not illegal to withdraw money from a SIPP before you reach 55 (57 from April 2028). However, because it’s a pension product, and the savings are intended to be used for retirement, you will face challenges and likely penalties.

Some SIPP providers won't allow early withdrawals at all; some will in exceptional circumstances. If it's something you're considering, I'd strongly advise getting financial advice from a qualified finance professional, so you can be sure it's the best possible option for your circumstances.

Penalties

In addition to possible early withdrawal penalties imposed by your provider, withdrawing funds before you are 55 will also mean HMRC will charge you a 55% tax on all your withdrawals. Losing almost half your pension savings in tax penalties means it's very rarely in your best interests to take this option.

The beauty of a SIPP is that it provides flexibility – and that applies to what you can invest in. The long list of assets you can choose from include:

• Any stocks and shares listed on any HMRC recognised stock exchange
• Bonds
• UK commercial property
• Real estate investment trusts (REITs)
• Exchange-traded funds (ETFs)
• Alternative Investment Markets (AIM)
• Authorised open ended investment companies (OEICs)
• Authorised unit trusts that do not hold residential property
• Offshore funds recognised by the Financial Conduct Authority (FCA)
• Shares in investment trusts
• Trustee investment bonds
• Investment grade gold bullion

There are some things you cannot invest in, however, including:

• Commodities other than gold bullion
• Cryptocurrency
• Futures and options
• Hedge funds
• Overseas commercial property and land
• Tangible assets such as art, classic cars, and wine

Remember, the value of your investment can go down as well as up. You may get back less than you put in.

You can open a SIPP if you are:

• A UK resident
• Under the age of 75
• Investing for your own retirement (a SIPP), or your child’s retirement (a Junior SIPP)

If you don’t feel comfortable making your own investment choices, or won’t benefit from the added flexibility a SIPP affords you, then a SIPP probably isn’t right for you.

If you have any doubts about whether a SIPP is suited to your particular circumstances, then it’s important to seek advice from a qualified financial adviser or planner.

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

Yes, you can. SIPPs can be a good way of consolidating multiple existing pensions into one, more manageable, pension pot, and gaining more control over your pension savings.

​​You can transfer most types of pension into a SIPP, including defined contribution personal and stakeholder pensions, pensions in drawdown, other SIPPs, Retirement Annuity Contracts (RACs), Executive Pension Plans (EPPs), and most paid-up occupational money purchase pensions.

Defined-benefit (DB) pensions are different: it probably isn’t in your best interests to transfer out of this kind of pension. If the amount you want to transfer is greater than £30,000, you legally cannot transfer out of a DB pension without first seeking advice from a regulated financial adviser.

Be careful, also, to check first whether you will incur penalties for withdrawing from your existing pension. Some providers levy hefty charges. Many providers do now offer to cover these charges when you transfer into them, however. Our reviews make it clear if this is the case.

Yes. You can open and pay into more than SIPP, but you’ll need to remember that your pension annual allowance (the most you can pay into pensions in a single tax year and still receive tax relief) remains the same and applies across all the pensions you hold. Currently the annual allowance is £60,000 or 100% of your qualifying earnings (whichever is lower).

Yes. Most providers allow employers to make contributions. You’ll just need to complete a form, set up a Direct Debit mandate, and your employer can start paying directly into your SIPP account.

Head to our Best SIPP page for our picks of the best SIPPs on the UK market.

You’ll find that there isn’t necessarily one ‘best’ SIPP, however, because you'll need to look at a number of factors to determine which SIPP suits you best. Those factors include:

• Your lifestyle and retirement goals
• Your current stage of life
• Your feelings about risk
• The size of your pension pot (if you already have savings
• Whether you want to take a DIY approach to building your investment portfolio, or use ready-made portfolio options offered by your provider
• Provider fees
• Pension fund performance data

Pension fund performance data

If you opt for a ready-made portfolio, fund performance will be an important issue for you. At Investing Insiders, we've undertaken independent analysis of fund performance for some of the most popular SIPP providers. While we haven't analysed every single fund on offer (there are thousands), we have compiled data for the ‘starter fund' options selected by providers as a suggestion for customers wanting a more ready-made option.

Here is how those funds perform:

A Junior SIPP works the same way as an adult SIPP, but it’s designed for parents and guardians who want to get a pension set up for their under-18s. When a child turns 18, the Junior SIPP becomes a normal adult SIPP, and the child takes over management of their pension, taking responsibility for all future investment decisions.

Savings into an adult SIPP are free of capital gains and dividend tax, and the same applies to the junior SIPP. There is a maximum you can contribute – £2,880 for the tax year 2024/25 – but because junior SIPPs benefit from the same 20% government bonus as adult SIPPs, the total contributed per year becomes £3,600. Because of the length of time the child’s money will be invested (they cannot get their hands on it for any reason other than retirement), and thanks to the magic of compounding, a junior SIPP could result in a very significant pension pot by retirement age.

Always remember, however, that the value of investments can fall as well as rise, and you may get back less than you invested.

While anyone can contribute to a child’s SIPP, it must be a child’s parent or guardian who opens the account. It might not seem like the most exciting present to a child, but it could be the most valuable gift they ever receive.

SIPPs can work out cheaper than other types of pension as you are taking some of the work traditionally done by pension providers and doing it yourself. However, just as SIPPs vary in how much flexibility and choice they provide, so the costs will vary too. Sometimes, you’ll find you’re paying more for more choice. Our Best SIPP review page provides information on respective platforms’ pricing.