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SIPP Guide

A Self-Invested Personal Pension (SIPP) is a type of personal pension that gives you full control over where your money is invested. Unlike a standard personal pension with a limited fund range, a SIPP allows you to choose from thousands of individual investments including shares, funds, investment trusts, exchange-traded funds (ETFs), gilts, bonds, commercial property, and more. SIPPs are particularly suited to experienced investors who want flexibility and are comfortable managing their own portfolio, though many providers also offer managed or ready-made portfolios for those who prefer a hands-off approach.

Tax Relief on Contributions

One of the key advantages of a SIPP is tax relief at your marginal rate. When you contribute to a SIPP, the basic-rate tax relief of 20% is automatically added by the government. For a contribution of £8,000, the government adds £2,000, giving you a total of £10,000 in your SIPP. If you are a higher-rate (40%) or additional-rate (45%) taxpayer, you can claim further relief through your Self Assessment tax return. The total you can contribute each tax year and still receive tax relief is capped at the higher of £60,000 or 100% of your relevant UK earnings. From 2024/25, the lifetime allowance has been abolished, removing the previous cap on the total value of pension benefits you can build up without incurring a tax charge.

Investment Choices

SIPPs offer an exceptionally broad range of investment options. You can invest in individual company shares listed on major stock exchanges, collective investment schemes such as unit trusts and OEICs, ETFs, investment trusts, government and corporate bonds, commercial property (but not residential property or holiday lets), and even some alternative assets. Many providers also offer dealing in foreign shares and currencies. The wide choice means you can build a diversified portfolio across asset classes, sectors, and geographies. However, you are responsible for your investment decisions — there is no default fund as you would find in a workplace pension, so you need to manage risk appropriately for your time horizon.

Charges and Platform Selection

SIPP providers charge a range of fees including platform fees (typically 0.15%–0.45% of your fund value per year), dealing charges for buying and selling investments, and possibly additional fees for holding certain assets or for transferring out. Some platforms charge a flat monthly or annual fee instead of a percentage. When choosing a SIPP provider — such as Hargreaves Lansdown, AJ Bell, Fidelity, Vanguard, Interactive Investor, or ii — compare the total cost based on your portfolio size and dealing frequency. For large portfolios, a flat-fee platform often works out cheaper than a percentage-based one. Smaller portfolios may benefit from percentage-based pricing. Check also for exit fees, though these have been largely banned by the FCA since 2021.

Accessing Your SIPP: Drawdown vs Annuity

From age 55 (rising to 57 from 6 April 2028), you can access your SIPP. You have several options. Flexi-access drawdown allows you to take your 25% tax-free lump sum and leave the rest invested, drawing income as and when you need it. Income withdrawals are taxed at your marginal rate. Alternatively, you can buy an annuity with some or all of your fund, which provides a guaranteed income for life. You can also take ad-hoc lump sums (UFPLS) from a flexi-access drawdown account, with 25% of each withdrawal tax-free. Many people use a combination: take the tax-free cash, keep the remainder invested in drawdown for flexibility, and use part of the fund to buy an annuity later for guaranteed income to cover essential costs.

Death Benefits

SIPPs offer highly tax-efficient death benefits. If you die before age 75, any remaining pension can be paid to your beneficiaries entirely tax-free, provided it is taken as a lump sum within two years or left in drawdown. If you die after age 75, beneficiaries pay their marginal rate of Income Tax on withdrawals. You can nominate beneficiaries via an expression of wish form, and the pension usually falls outside your estate for Inheritance Tax purposes. This makes SIPPs a powerful estate planning vehicle, particularly for those who do not need to draw on their pension in retirement.