Self-Invested Personal Pensions (SIPPs)


Self-Invested Personal Pension Schemes

Self-invested personal pensions (SIPPs) work in a similar way to a standard personal pension. However, some schemes give you a much wider choice of investments – which you manage yourself or with the help of a financial adviser.

A SIPP may be appropriate for you if you’re confident in making your own investment decisions and managing your pension payments against the relevant allowances. You’re in control of how and where your money is invested, and you make the decisions that determine how your pension pot performs.

Can I have a SIPP and a workplace pension?

Yes, you can have both. However, if your employer matches contributions which you pay into your workplace pension, it’ll normally be better to put your money in there first. That’s because the extra employer contributions help to boost your savings.

If you’re thinking of setting up a SIPP so you can make extra contributions outside of your workplace pension, it’s a good idea to compare the costs and charges. SIPPs also affect your lifetime allowance and annual allowance in the same way as other defined contribution pensions.


How do I know if a SIPP is right for me?

A SIPP could be right for you if you are looking for a wider choice of investment options and have sufficient knowledge and experience of investing to make your own investment decisions or have a trusted adviser to help you make these decisions.

A SIPP provides a range and flexibility of investment options that make it one of the most flexible methods of saving for retirement. You can invest money into your SIPP up until you reach age 75, and start withdrawing money from it as early as age 55 (57 from 2028).

As with all defined contribution schemes, the amount that you will have available when you retire depends on the contributions that you, and any employers, have made and how your investments perform over time.

If appropriate, almost anyone under the age of 75 in the UK could open and make tax-relievable contributions to a SIPP. Parents can open a Junior SIPP for their children. However, SIPPs are not suitable for every investor and other types of pensions may be more appropriate.

As with all pensions, SIPPs provide favourable tax treatment. Once in a SIPP wrapper, your savings will grow free from UK income tax and capital gains tax.


Do the same tax and contribution rules apply to a SIPP as other pensions?

Tax Relief

A SIPP is governed by the same tax and contribution rules as other pensions. Anyone in the UK who pays into a SIPP can claim pension tax relief, including low-income earners.

Tax relief is paid on your pension contributions at up to the highest rate of income tax you pay. Basic rate and non-taxpayers receive 20% pension tax relief. Higher-rate taxpayers can claim 40% pension tax relief and additional-rate taxpayers can claim 45% pension tax relief on any contributions matched by income taxable at those rates.

Annual Allowance

Your annual allowance is the most you can save in your pension pots in a tax year (6 April to 5 April) before you have to pay tax. You’ll only pay tax if you go above the annual allowance.

From 6 April 2023, the Annual Allowance is set to rise from £40,000 to £60,000.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age).  The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislations and regulation which are subject to change. You should seek advice to understand your options at retirement.

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