The Complete Guide to SIPPs in the UK

Written by Elizabeth Anderson
Fact-checked by Steven Hatzakis
Edited by Jeff Anberg

August 21, 2024

A SIPP is a great way to save money for retirement, allowing you to top up the state pension or stop work earlier than the state pension age. SIPPs—self-invested personal pensions—can be opened by anyone in the U.K. under the age of 75, whether you are employed, self-employed, or don’t work.

The benefits of SIPPs are tax relief, low fees, and a wide number of investment choices. I currently have three self-invested personal pensions with different providers, each offering different investment propositions. Fortunately, there is nothing to stop you from opening several to compare and take advantage of the various offerings. In this guide, I’ll give you the complete rundown on what SIPPs are, how best to use one, and what to look for in a provider.

What is a Self-Invested Personal Pension (SIPP)?

A SIPP is a savings product designed to help you save for retirement. Anyone under the age of 75 can open a SIPP, whether you are self-employed, employed, unemployed, or currently not working. You can even open a SIPP for your child.

Most U.K. adults will be entitled to the state pension, which you get from age 66 (rising to 67 by 2028). The full state pension, if you qualify, is currently worth around £11,500 a year. This is widely accepted as not enough to live on comfortably, so it’s important to have your own private savings to top up the state pension. This is where a self-invested personal pension (SIPP) can help.

There are generous tax incentives available to encourage you to save into a pension, and this is the key benefit of saving into a SIPP.

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How a SIPP works

If you’re employed, you should have a pension that you are paying into automatically through your monthly salary.

The main reason you’d open a SIPP is if you are self-employed and therefore don’t have a workplace pension. It allows you to save into a pension chosen by yourself.

That said, SIPPs are also opened by people with a workplace pension who like the idea of making additional contributions into a pension managed by themselves.

There are many SIPP providers in the U.K.. After some research, you should pick one that best suits your financial needs. There is also nothing to stop you from having multiple SIPPs, as long as you can keep track of them.

Benefits of investing in a SIPP

The main benefit of investing in a SIPP is the tax relief. Every time you pay money in, the government tops this up by 20%. So if you pay in £100, the effective cost to you is £80 as the government adds £20.

Higher-rate taxpayers or additional-rate taxpayers, earning over £50,270 or £125,140 respectively, can claim back further tax relief in their self-assessment return. This reduces the cost of a £100 contribution to £60 or £55.

If you own a company, you can make contributions into a SIPP directly from your business bank account. Pension contributions are normally deemed an allowable business expense, so you save on corporation tax and other taxes compared to withdrawing the money as salary or income.

travel_exploreReal-world example

I have opened and paid into several SIPPs over the years. I currently have three that I manage, although I’m only regularly paying into one. I am self-employed and operate through a limited company, so contributions to my SIPP are paid from my business bank account. I usually wait until I get close to the end of my business financial year and then work out how much to pay in. I generally aim for around 15% of total gross income.

You can start withdrawing money from a SIPP from age 55 (rising to 57 in 2028). As you get close to this age it makes sense to consider maximising pension savings where possible - particularly above other investment accounts - due to the tax relief and the fact you’ll soon be able to take the money out. The first 25% of your total pension savings are tax-free, with the remainder potentially subject to income tax depending on your income each year.

Another benefit of a SIPP is the flexibility. You can often make ad-hoc payments so you don’t have to commit to regular contributions – which can be appealing to self-employed people who don’t have a regular income.

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Types of investments available in a SIPP

Beyond the tax relief and flexibility, the other benefit of a SIPP is the wide range of investments available.

You can hold individual company shares, funds such as mutual funds, ETFs, and investment trusts, as well as bonds and commercial property.

If you don’t like the idea of choosing your own investments, SIPP providers will often offer ready-made portfolios to make it easy for you.

SIPP charges

Investing costs money, so you will pay SIPP charges. Every SIPP provider will differ in their fees. Some will charge a flat fee and others will charge a percentage of your overall investment.

On top of the broker fees, you may also be charged underlying fees for funds you hold, as well as dealing charges when you buy and sell investments. In general, it’s perhaps best to aim for total fees of less than 0.75% a year if you want to keep costs low.

Contribution limits and withdrawal rules

You can invest up to £60,000 into a SIPP each tax year (inclusive of tax relief). You can pay in more than this but you don’t get tax relief on the additional amount over the limit. For children and those not working, the annual limit is £3,600 gross (£2,880 net before tax relief is applied).

Bear in mind that you can only pay in as much as you earn. So if your annual salary is £40,000 a year, you could only pay up to £40,000 into a SIPP. However, you can use any unused allowance from the previous three years.

You can’t withdraw money from your SIPP until age 55 (rising to age 57 in 2028), although you can move money between different SIPP providers and different investments before then.

How to set up a SIPP account

It’s easy to set up a SIPP. Here are the key steps:

Get together key financial information, such as your national insurance number, debit card, or bank account details.
Compare different providers to find the one you think best suits you.
Select ‘open SIPP’.
Read the terms and conditions.
Fill in your details such as name, date of birth, nationality, and address. If you already have an account with the platform - perhaps because you already hold an ISA there - this may not be needed.
Select how much you want to pay in.
Choose your investments.
If you are transferring a pension to the SIPP provider, you’ll need to complete a transfer form through the new provider.

Choosing the best SIPP provider for your needs

The best SIPP for you will depend on how much you have invested, the investments you plan to hold, how confident you are in selecting your own investments, and perhaps whether you want a good mobile app or user-friendly website.

Charges should be an important consideration. If, for example, you have more than £60,000 in a SIPP then a flat fee broker may be worth considering. Interactive Investor charges £12.99 a month (£155.88 a year) and offers free dealing for those who buy the same investment each month through regular dealing. Underlying fund fees apply on top.

Freetrade charges £11.99 a month (or a discounted annual rate of £119.88). The investment range is a little more limited, but a wide range of ETFs and company stocks are available. It’s free to buy and sell investments and there are no holding fees.

A percentage fee may work out better if you are just starting out or have a smaller pot. Hargreaves Lansdown’s SIPP, for example, charges an annual management fee of 0.45% on amounts up to £250,000. The fee is capped at £200 a year if you hold company shares or ETFs, rather than funds. This is on top of other costs such as underlying fund charges and share dealing fees. Funds are free to buy and sell.

As an example, if you held £60,000 in funds with Hargreaves Lansdown you’d pay annual management fees of £270 a year. If holding £60,000 in shares or ETFs, you’d pay £200. So a flat-fee broker may be worth considering, although there are certainly other things to scrutinize that could make the extra cost worth it such as customer service, the mobile app, or the research materials available.

shopping_cart_checkoutThe best SIPP providers

Interested in opening a SIPP account? Check out my related guide where I go over the best SIPP providers in the U.K. whether you're seeking the best overall provider or the best one for your specific financial needs.

SIPPs vs ISAs

Both SIPPs and ISAs (individual savings accounts) are tax-efficient savings accounts. The benefit of a SIPP is the tax relief you get upfront on your investment. Your investment can then grow tax-free until you withdraw money from your SIPP. At that point, you’ll pay income tax, although the first 25% is tax-free.

With ISAs, contributions come out of post-tax income so there is no upfront tax relief. However, withdrawals from ISAs are tax-free and you can withdraw money from ISAs at any age – unlike SIPPs that can’t be accessed until your mid-50s.

account_balanceInterested in ISAs?

Want to learn more about ISAs? Check out my complete guide to ISAs in the U.K. where I cover what they are, the different types available, how to open one, and what to look for in a provider. If you're interested in investing into an ISA, be sure to visit my guide to the best stocks and shares ISAs.

FAQs

How many SIPPs can I have?

There is no limit to how many SIPPs you can have. You can have multiple SIPPs. Just remember there is an annual limit of up to £60,000 that you can pay in and still claim tax relief.

Can I have a SIPP and a workplace pension?

Yes, you can hold a SIPP in addition to a workplace pension. If you are an employee, your first priority should be your workplace pension as your company will also make contributions. If you have maxed out your company contributions and would like to pay more into a pension, this is when a SIPP could be worth considering.

If you’ve had multiple jobs over the years and have various pensions, you may want to consolidate them into one SIPP. This is what I did when I was still an employee. It gave me flexibility and control over previous pensions, while also paying into a workplace pension.

What happens to my SIPP when I die?

Any money held in your SIPP will be passed on to a beneficiary or beneficiaries chosen by you. These are people (or charities) you have named to receive the money after you pass away. You should name your beneficiaries when setting up your SIPP, but if you want to do it at a later date, log into your account and choose the option that allows you to update your details.

Money held in a SIPP is ‘outside your estate’ and therefore free of inheritance tax. If you die before the age of 75, your beneficiaries will also not have to pay income tax on the funds from the SIPP.

Do you pay tax on SIPP withdrawals?

SIPPs are a retirement product and therefore cannot usually be accessed before age 55. You face paying 55% tax on any unauthorised withdrawals. However, you may be able to access the money early without penalty if you have a serious health condition.

Once you’ve reached age 55 and have started withdrawing from your SIPP, you can take 25% as a tax-free lump sum. Alternatively, you can spread the 25% tax-free amount over several withdrawals. So if you withdrew £500 a month, the first £125 (25%) would be tax-free. The remaining £375 may be subject to 20%, 40%, or 45% income tax depending on your overall earnings.

Are SIPPs worth it?

SIPPs are worth considering for retirement or long-term savings. The tax relief gives the pot a boost, along with how your investments perform. The downside is that you can’t withdraw money before the age of 55, but this is earlier than the official state pension age of 67.

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About the Editorial Team

Elizabeth Anderson, lead writer and researcher, has been a financial journalist for more than a decade. In addition to her work with UK.StockBrokers.com, she has written extensively for major publications including BBC, The Times and Bloomberg. A keen investor herself, she is passionate about helping people understand finance and investing.

Steven Hatzakis is the Global Director of Online Broker Research for UK.StockBrokers.com and ForexBrokers.com. Steven previously served as an Editor for Finance Magnates, where he authored over 1,000 published articles about the online finance industry. Steven is an active fintech and crypto industry researcher and advises blockchain companies at the board level. Over the past 20 years, Steven has held numerous positions within the international forex markets, from writing to consulting to serving as a registered commodity futures representative.

Jeff Anberg is a Staff Editor at UK.StockBrokers.com. Along with years of experience in media distribution at a global newsroom, Jeff has a versatile knowledge base encompassing the technology and financial markets. He is a long-time active investor and engages in research on emerging markets like cryptocurrency. Jeff holds a Bachelor’s Degree in English Literature with a minor in Philosophy from San Francisco State University.