A Self-Invested Personal Pension (SIPP) is a type of personal pension that lets you choose and manage your own investments. Unlike a workplace pension where your employer picks the provider and default fund, a SIPP puts you in the driving seat. You decide what to invest in, which provider to use, and how much to contribute.
How a SIPP works
Mechanically, a SIPP works like any other pension. You contribute money, receive tax relief, and the pot grows until you access it in retirement (currently from age 55, rising to 57 from April 2028). The difference is the investment range — SIPPs typically offer thousands of funds, individual shares, investment trusts, ETFs, bonds, and sometimes commercial property.
Tax relief works the same way as other pensions. If you contribute £800, your SIPP provider claims £200 from HMRC and adds it to your pot, giving you £1,000. Higher and additional rate taxpayers claim the extra relief through their self-assessment tax return. The annual allowance is £60,000 or 100% of your earnings, whichever is lower.
What can you invest in?
This depends on your provider, but most SIPPs offer:
Funds — the most popular choice. Index trackers, actively managed funds, multi-asset funds. A global equity index tracker is a common core holding.
Individual shares — UK and international. More work and more risk than funds, but some investors prefer building their own portfolio.
Investment trusts and ETFs — listed on stock exchanges, these offer diversified exposure and are often cheaper than equivalent funds.
Government and corporate bonds — lower risk, lower expected returns. Often used to reduce volatility as retirement approaches.
Commercial property — some full SIPPs allow direct commercial property investment, though this is complex and typically requires a larger pot.
SIPP charges
Charges vary enormously between providers and they matter more than most people realise. The main charges to compare:
Platform fee — an annual charge based on the value of your pot, typically 0.15% to 0.45%. Some providers charge a flat fee instead (e.g. £10-12 per month), which becomes better value as your pot grows.
Fund charges — the ongoing charge of each fund you invest in, typically 0.05% to 1.5%. Index trackers are cheapest; actively managed funds charge more.
Dealing charges — fees for buying and selling individual shares or investment trusts. Typically £5-12 per trade. Not relevant if you only use funds.
Over a 30-year period, the difference between paying 0.5% and 1.0% in total annual charges could reduce your final pot by 15-20%. Use comparison sites to find the cheapest provider for your pot size and investment style.
Who should consider a SIPP?
A SIPP makes most sense if you want more investment choice than your workplace pension offers, if you're self-employed and don't have a workplace pension, if you want to consolidate old pension pots into one place, or if you have the confidence and willingness to manage your own investments.
If you're happy with a simple default fund and don't want to think about investment choices, a SIPP adds complexity without much benefit. Your workplace pension's default fund is likely perfectly adequate for most people.
SIPPs and workplace pensions together
Many people have both. They contribute enough to their workplace pension to capture the full employer match, then put additional savings into a SIPP for greater investment flexibility. This is a sensible approach that combines the best of both worlds.
Accessing your SIPP
From age 55 (57 from April 2028), you can access your SIPP in several ways:
Tax-free lump sum — you can take 25% of your pot as a tax-free lump sum. The rest is taxed as income when you withdraw it.
Flexi-access drawdown — keep your money invested and withdraw income as you need it. The withdrawals (beyond the 25% tax-free portion) are taxed as income.
Annuity — use some or all of your pot to buy a guaranteed income for life from an insurance company.
Uncrystallised funds pension lump sum (UFPLS) — take lump sums directly from your pot. Each withdrawal is 25% tax-free with the rest taxed as income.
You can mix and match these options. There's no requirement to access your pension at 55 — you can leave it invested and growing for as long as you like.
SIPP and inheritance
One often-overlooked advantage of SIPPs is inheritance tax. Pension pots generally sit outside your estate for IHT purposes. If you die before 75, your beneficiaries receive the pot tax-free. If you die after 75, they pay income tax on withdrawals at their marginal rate. This makes pensions one of the most tax-efficient assets to pass on, and is worth considering in your wider estate planning.
Transferring pensions into a SIPP
You can transfer old workplace pensions and personal pensions into a SIPP. This simplifies your retirement planning and might reduce charges. However, never transfer a defined benefit (final salary) pension without taking independent financial advice — it's a legal requirement if the transfer value exceeds £30,000, and for good reason. DB pensions offer guarantees that are extremely hard to replicate.