What is a SIPP? Our 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 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 A ready-made portfolio is a pre-made collection of investments that have been put together by investment experts. They are designed to be a simple option for those who don’t want to choose individual stocks or funds for themselves.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:

• A commodity is any basic raw material that can be bought and sold, for example, copper, silver, oil or coffee.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 A ready-made portfolio is a pre-made collection of investments that have been put together by investment experts. They are designed to be a simple option for those who don’t want to choose individual stocks or funds for themselves.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.

This is the number one question asked of Financial Advisers – and for good reason.

For most people, the aim is to retire as soon as possible. But you also want to ensure that you can retire comfortably, so that you can enjoy a good standard of living for as long as you live.

There are many factors to consider, including things it’s not possible to know for sure in advance (such as future inflation rates, and how long you’ll live). However, by using details that you do know, it’s possible to gain a more clear picture of when you could afford to retire.

Here’s how:

1. Identify much you’ll need to live on each year as a retiree. This is, of course, something that will be personal to you. If you don’t already have a vision in your mind of the kind of lifestyle you’d like in retirement, now’s the time to think about it, before attempting any other calculations.

Add together your estimated basic living costs as a retiree (for example: housing, food, utility bills) plus the non-essential costs you’re likely to incur. That could include the cost of your hobbies, transport, or travel, for example. And don’t forget to include any one-off expenses (such as the cost of relocation to a new part of the country, renovations to your home, or helping out your children/grandchildren) that you intend to fund from your retirement savings.

If you’re struggling with this, the average amount currently considered ‘comfortable’ per year to fund retirement in the UK somewhere in the region of:

• £23,000–£30,000 for one person
• £34,000–£45,000+ for a couple

The Pensions and Lifetime Savings Association (PLSA) also did some work in 2023 on average annual retirement living standards, designed to help people picture what kind of lifestyle they can afford in the future. The following are based on their analysis of a single person living outside of London:

• Minimum: £12,800 a year which will cover basic needs with a bit of money left over for enjoyment
• Moderate: £23,300 a year, which would leave you more financially secure and give you some flexibility
• Comfortable: £37,300 a year which would mean you have more financial freedom and can afford some luxuries

However, it’s important to remember with the above estimates that these are just best-guesses, based on averages. Always be led by your specific needs, goals and ambitions for retirement, and plan accordingly.

2. Discover how much you have saved already — and how much growth it may gain over a longer period of time.

To work this out, you’ll want to factor in:

• Your pension pot size now
• How much it is projected to grow if you continue to make contributions for another 1 year / 5 years / 10 years etc.
• What your State Pension will be worth

If you want some help with projected growth on your personal/workplace pension, let our pension calculator do the work for you.

To find out how much State Pension you will receive, visit the government State Pension Forecast page.

• Any other savings or income sources you’ll have (e.g. ISAs, property, inheritance, sale of your business)

3. Think about how long your money will need to last

This is tough, because none of us have a crystal ball. If you live to the grand old age of 100 and spend 40 years in retirement, you’ll clearly need a lot more in savings than you would need to cover a retirement that only lasts 15 years.

For reference, the average length of retirement for a UK male is 17 years. For females, it is 20 years.

Now, divide the total you already have (or that you’re projected to have at some point in the future) by the amount you expect to spend to maintain your desired lifestyle in retirement. How many years does that total pot last for? If it’s not as many years as you think you’ll spend in retirement, you either need to wait longer to retire, increase the contributions to your pot as you work towards retirement, or perhaps think about a way to supplement your income in retirement.

A final word of caution – This is a simplistic way of looking at retirement planning which doesn’t factor in things like the effects of inflation, or your changing needs and costs as you age. So getting advice from a retirement specialist Financial Planner, who has considerable experience in this area, is a wise move, particularly if your particular calculations involve very large sums of money or complicated circumstances.

The answer to this question will largely depend on your age right now, and what kind of retirement lifestyle you want to enjoy.

The younger you are, the more years you will hopefully spend in retirement, and the larger the pot you will need to sustain you.

Similarly, the more you plan to spend in retirement, the more you’ll need put away to begin your post-work life. (Alternatively, you’ll need an additional source of income during retirement.)

The average amount considered ‘comfortable’ per year to fund retirement in the UK is:

• £23,000–£30,000 for one person
• £34,000–£45,000+ for a couple

However, it’s important to remember, this is just an average. Be led by your plans and ambitions for retirement, and plan accordingly.

Next, you’ll need to multiply that by the number of years you expect to spend in retirement. For most of us, that’s something we can’t predict, in which case be led by average life expectancy. For a male in the UK, it’s 79 years, and for females, it’s 83 years.

This is a fairly simplistic way of doing the calculation, but it will give you a rough estimate of the total you will need to fund retirement.

That very much depends on how you choose to live in retirement. If your plans involve trips abroad, cruises, eating out or taking up new hobbies then your costs will be higher than a retirement spent living more frugally. For many people, retirement is the reward for decades of hard work and is a chance to enjoy new experiences. Whatever your dreams for this part of your life, you don’t want it to be dogged by money worries, so working out, in advance, how much you’ll need to fulfil your plans means you won’t be disappointed.

Start by looking at your likely basic living expenses – and remember these might not be the same as when you were in work. Your travel costs may reduce, for example, if you’re no longer having to commute to work everyday. Your energy costs, however, may rise if you’re at home more than you were previously. Once you have a rough estimate of your basic costs, think about the additional extras you will need to budget for. This could be the costs of overseas travel and holidays, new hobbies or the costs of moving if you plan to relocate.

What people sometimes forget is that how you live will change as you age. So the early part of your retirement may be very busy and have more costs associated with it, whereas later retirement years are likely to be less active, although there are other costs, such as the possible cost of care, associated with it.

If you’re not sure how to budget for retirement, speak to a Financial Advisor or Planner who specialises in retirement planning. They will help you nail down how much you will need to have saved.

If you’re just looking for a ballpark figure at this stage, then the average annual UK retiree budget is:

• £23,000–£30,000 for an individual
• £34,000–£45,000+ for a couple

However, it’s important to remember, this is just an average. Be led by your plans and expectations. Ask yourself if you would be happy to experience a drop in living standards in retirement and if not, what you consider a comfortable amount now.

Inflation!

There is one other factor to consider: inflation. Changes in inflation don’t directly affect how much you have in your pension pot, but they can have an impact on its relative value (i.e. what you can afford).

Inflation can be tricky to plan for, but there is a helpful rule of thumb here: the 4% rule.

The 4% rule says that if you withdraw 4% of your retirement pot in your first year of retirement, then increase the amount for each year that follows by the rate of inflation for that year, then your money should last you about 30 years.

So if you retire with £500,000, you’d:

• Withdraw £20,000 (4%) in year 1
• In year 2, increase that £20,000 by inflation (Let’s say 3%) = £20,600
• In year 3, increase that £20,600 by inflation (Let’s say it’s 2.5% this year) = £21,115

To be clear – you don’t keep withdrawing just 4% of the portfolio balance every year with this method. Instead, you’re ensuring you maintain your purchasing power by spending the same, inflation-adjusted amount every year.

To work this out simply, you need to divide your total pot amount by the amount you predict you’ll need to fund your retirement per year.

So, if you have £750,000 in your retirement fund, and you think you’re going to need £30,000 per year throughout retirement, then you’ve probably got enough to sustain your desired lifestyle for 25 years.

Don’t forget to include your State Pension in this calculation. It’s paid in addition to your private and workplace pension withdrawals. So if wanted a yearly income of £30,000 in the current tax year, you’d only need to draw down £18,027 from your personal retirement pot, as it will be subsidised by your State pension to the tune of £11,973 (if you were eligible to receive the full State Pension). If you want some help working out what you’ll be entitled to, the UK government provides a free State Pension forecasting service here.

That’s the simple way to work it out.

There are two factors however that slightly complicate the calculation: inflation and growth. The bad news is that inflation will eat away at your spending power, but the good news is that investment returns (plus future increases in the State Pension) can more than compensate for those losses. That makes it even more important that:

• You are happy with the returns you are receiving on your pension savings

Check out how your pension fund’s performance compares to other funds with our industry-leading Pension Checker Tool.

• You are not paying too much in fees for your pensions

Fees can eat away at your retirement savings, and even small differences in annual charges can make a huge difference over 20 years, especially once compound interest is factored in.

Check you’re not paying too much for your self-invested pensions with our SIPP Cost Comparison Calculator.

With good planning, you’ll hopefully never find yourself in this situation. However, if this scenario does arise, you do have some options.

The first and most important thing to do is evaluate your spending — and reduce it where you can.

Gain a clear picture of where your money has been going. Lay it all out and then identify if there are any areas you could make easy wins: i.e. cut-backs that don’t affect your quality of life too much. These are things like changing energy suppliers, reviewing your insurance plans, and cancelling any unused subscriptions.

If that isn’t possible, or those changes aren’t enough on their own, then you might need to make some tougher decisions. That could mean looking at cutting back on holiday plans, downsizing, renting out a room, or releasing equity from your property.

If you own your home, it’s a major resource. However, releasing equity through a product such as a lifetime mortgage is a big decision with long-term implications. So seek independent advice from a suitably qualified professional before deciding whether to pursue this path.

Return to some form of paid work

‘Unretiring’ is becoming increasingly common, and more age-friendly employers and flexible roles are available now than ever before.

Of course, it must be something that works for your health and wellbeing. Most people returning to work in retirement do so part-time, or in some form of freelance or consulting capacity. There are other options too such as short-term, seasonal positions over the busy Christmas period.
Alternatively, you could consider turning your hobby into a source of income. This may be ideal if you only need a modest income to ease the pressure on your savings.

Check your eligibility for state support

Make sure you’re not missing out on any benefits or support. It’s particularly important to check this if your income drops as you could find this makes you eligible for benefits you weren’t previously able to receive such as the Winter Fuel Payment. Age UK, Turn2Us and Citizens Advice Bureau can all help you identify what you may be eligible to receive.

Tap into other assets

Do you have any ISAs or forgotten pensions you could draw money from? Or any valuables you could sell that will help bridge the gap between how much you have and how much you need?

Revisit your investment and savings strategy

Are you keeping too much of your wealth in cash, for example? If interest rates aren’t keeping pace with the rate of inflation, then you’re losing money in real terms. Investing in assets that grow faster than inflation, on the other hand, protects your purchasing power.

Of course, you don’t want to expose your money to high levels of risk during retirement, but that doesn’t rule out investing altogether. There are more ways to invest than ever before, including options that still open up the potential for higher returns, but with very little risk such as Money Market Funds.

Consider buying an annuity

An annuity is a financial product you can buy with your pension pot (or other savings) that gives you a guaranteed income for life or for a fixed period.

So instead of taking out chunks of your pension as you need it (‘income drawdown’), you exchange some or all of it for a regular income.

It’s a more secure and predictable way to fund retirement, so it’s good for people who want certainty, but there are some downsides: Once you buy one, you can’t usually change your mind — it’s a one-time purchase; If you die early, the insurer may keep what’s left (unless you have a guarantee period or joint life); And returns can be lower compared to income drawdown or investing — especially if interest rates are low.

The earlier you spot the problem (or potential problem), the more choices you’ll have. So don’t delay taking action if you think your finances are heading in the wrong direction.

That’s a good question to ask – especially if your calculations show that what you’re on track to receive in retirement isn’t going to be enough.

It’s surprising how small differences to your monthly contributions can add up to big differences to your final pot – especially once compound interest has been given the opportunity to multiply the gains.

Here are some examples:

If you saved £225 per month rather than £125 per month, from age 25 the difference at age 65 (assuming an annual growth rate of 5%) would be £344,247.75 vs £191,248.75 without the additional contributions. That’s £152,999.00 more from that extra £100 per month. Why so much more? That’s the magic of compound interest. Compound interest is interest accumulated from your original investments plus previously accumulated interest. Simply put, it’s interest on your interest.

Let’s look at what it would be if you started saving at age 30: Assuming the same amounts were saved per month (£125 vs £225), you’d be looking at £104,000 more (£129,999 vs £233,998) at age 65 if you had saved the extra amount.

If you want to know what difference it could make in your personal circumstances, test some different scenarios out using out Pension Calculator.

To illustrate what a difference even smaller changes in contributions can make, let’s compare the difference between saving £25 per month, and £75 per month. Assuming 5% annual growth and a retirement age of 65, if you added an extra £50 per month to your pension pot (starting at age 25) you’d amass and additional £76,433 more over the course of your working life.