SIPP stands for "self-invested personal pension". It is a form of defined contribution pension, which means that the amount of money you get when you retire is dependent on how much you save, the tax relief you get added on, and how well your investments perform.

SIPPS allow you control everything from how much you save to where the money is invested. For this reason, SIPPs are often also called “DIY pensions”. You’ll be responsible for choosing the assets you invest in, deciding when to buy and sell, and ultimately responsible for the performance of your savings.

People who invest in a SIPP need to have a thorough understanding of investments and the markets. If you want the flexibility of a SIPP, but also want help with your decisions, you can employ a financial adviser, however this comes with a price tag.

SIPPs have all the same tax advantages of other forms of personal and workplace pensions. That means you’ll get tax relief on the money you save, and you get a tax-free lump sum at retirement. It is also subject to the same rules and restrictions around how and when you can access the money (learn more in our ‘how does a SIPP work’ section.

The cost of a SIPP varies depending on whether it is a full SIPP with an extensive range of investments available, or a ‘low cost’ SIPP with fewer options.

Once you’ve set up a SIPP, you can start saving money. You can put in a one-off lump sum, make regular contributions, or even put in different amounts each month.

In many ways, these products work just like any other pension saving, in that you save your money and get tax-relief on top.

The main difference is that you choose exactly what funds, shares, trusts or other investment vehicles your retirement savings go into, then swap these around as and when you see fit. There are lots of asset classes to get your head around, from collective investments and company shares, to investment trusts and commercial property. That means it’s important to review your investments regularly and make sure you thoroughly research your options when deciding where to put your money. 

You’ll need to set aside regular time to keep on top of your portfolio and make decisions. Remember, with managed pension funds, there is someone whose full-time job is to decide where your money is invested and what assets to buy and sell. In a SIPP, this is all your responsibility.

Whether or not a SIPP is right for you, depends on your retirement goals, employment circumstances and investment knowledge.

If you already have a workplace scheme through your job, this comes with a host of benefits including employer contributions, a cap on costs, and strong governance. Therefore, a SIPP should only be considered for additional savings, rather than as an alternative to your workplace pension. If you opt out from your employer pension to save into a SIPP instead, you’ll lose the generous employer contribution.

Some employers offer something called matching. This means that if you increase the amount that you save each month, your bosses will too. If this is an option, you should consider this before turning to a SIPP, or you will miss out on the top up.

SIPPs are designed for people who want more control over their investments. However, some employer schemes also allow you to make investment choices. Check what’s on offer before you decide.

Self-employed people or those who do not work do not get automatically enrolled into a workplace scheme. For these groups, SIPPs are one of the options to save for retirement. 

But investing in a SIPP means making your own investment choices, so it’s not for novices. There are other options such as personal pension or a stocks and shares lifetime ISA, that may be a better fit. If you do decide to invest in a SIPP, consider seeking independent financial advice to help you make the right investment choices.

SIPPs are usually managed online or via an app. Some can be managed by phone or post, but you might have to pay more for one that isn’t managed digitally.

All SIPP providers are different and have varying rules, so you need to check the details to find out exactly what you need to do.

Managing your self-invested pension online is usually the easiest option. It works like online banking or share trading: you can buy and sell investments and monitor their progress with the click of a button.

You can read our full guide to managing your pension funds here.

Some investments cost more in fees than others - so check before trading.”

You can put as much money as you'd like into your pension, but there are three limits to the amount you can get tax relief on.

While you're earning, you can put in 100% of your earnings up to a maximum of £60,000 each year and qualify for tax relief. Above that, you’ll face a tax charge. This is also known as the annual allowance.

If you earn more than £260,000 a year, the amount you can put in tax-free gradually reduces. For every £2 earned over £260,000, the amount you can contribute reduces by £1 until the annual allowance reaches £10,000.

If you're not earning money, you can still put £2,880 a year into your pension and get tax relief of £720 added, which means you can add £3,600 a year to your pot free of income tax.

There used to be something called a lifetime allowance on your pension, but this has now been scrapped. However, if you accessed your retirement savings before April 6, 2024, the old rules still applied and you needed to pay a tax charge if your pot was worth more than £1,073,100.  

Finally, the amount you can pay in whilst still benefiting from tax relief drops dramatically as soon as you begin withdrawing money from your pension. Once you've started drawing on your SIPP, the annual limit immediately falls to £10,000.

Higher-rate taxpayers have to use a self-assessment form to claim their full allowance on a SIPP.”

SIPPs allow you to invest in an extremely large number of shares, assets, trusts and more, but not every provider has the same range of offerings. Comparing the fund ranges on offer is one of the most important factors to consider when selecting a SIPP provider.

Whichever SIPP you choose, you should have access to;

• Company shares

• Unit trusts

• Open-Ended Investment Companies (OEICs)

• Commercial property and land

• Real estate investment trusts

• Offshore funds

You can seek independent financial advice to help you choose the right investment strategy and funds. If you invest without taking proper advice, you’re more likely to make poor decisions and have less protection if things go wrong.

SIPPs typically offer a much wider range of investment options than many other pensions.”

The costs can vary a lot, depending on how you invest and which SIPP provider you are using.

There's a range of charges you might expect to see. These include:

• Annual management fees: the most common type of fee - this will either be a percentage charge of your entire pension pot each year or a fixed cost

• Dealing charges: fees for buying and selling investments in your SIPP, usually based on how often and how many times you make trades

• Annual administration charges: these are part of some accounts but not others. It’s either an annual flat fee or a percentage of your investment. You might see this being called a platform fee

• Exit fees: charged if you decide to transfer your SIPP to another SIPP provider. This could equate to a lot of money depending on how many shares you have, so check carefully. Exit fees have been banned on pensions set up on or after 31 March 2017

• Drawdown charges: these apply when you start taking money from your SIPP. There could be an initial set-up fee, plus ongoing charges, so check before you choose a provider

Before you start investing in a SIPP, make sure you do your research to determine what costs are involved. This can significantly impact what money you have when you retire, so it’s important to choose wisely and consider taking advice.

The cheapest SIPP will depend on how often you plan to make changes to your portfolio as well as what you invest in.”

Any money you have left in your SIPP can be passed on to your nominated beneficiaries, free of inheritance tax until 5 April 2027.

However, your loved ones may have to pay income tax depending on how old you are when you die. If you die before you’re 75, your beneficiaries will get your SIPP income-tax-free, unless they take a lump sum that exceeds your lump sum and death benefit allowance (usually up to £1,073,100). If you’re older than that, any withdrawals your beneficiaries make are subject to their current income tax rate.

SIPP FAQs