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        Updated: April 08, 2024

        A Complete Guide to SIPPs

        From SIPP allowances to withdrawal regulations, we’ve got you covered in our comprehensive guide to setting up and investing in a SIPP.

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        We all know we should be making more provisions for retirement, but with so many savings and pension options to choose from, it can feel difficult to know where to start. If you’re looking for a pension product that’s transparent, flexible and gives you the option to have control over your investments, then a self-invested personal pension, known as a SIPP, could be for you.

        In this comprehensive guide we’ll take you through everything you need to know about setting up a SIPP, the pros and cons compared to other types of pension, how to make sure you claim all of the tax relief you’re due, and the rules for exactly how much you can invest each year and over a lifetime.

        What is a SIPP and how do they work?

        A SIPP is essentially a DIY pension – a way of saving for retirement within a tax-efficient wrapper, but with more freedom than a standard personal pension. With a SIPP you get to choose exactly how your contributions are invested and you can buy and sell assets within your SIPP whenever you like. Typical assets held within a SIPP include stocks and shares, unit trusts, investment trusts, cash, commercial property and land. You can even hold gold in some SIPPs.

        A SIPP is a pension product, so you can’t access your cash until you’re 55, (increasing to 57 in April 2028). You can make regular or one off contributions, transfer in existing pensions and up to prescribed limits detailed further below, claim tax relief on the money you pay in.

        The key benefits of a SIPP include:

        • Freedom as to how you choose to manage them – can be ideal for confident investors
        • Investment growth is protected from income and capital gains tax
        • Tax relief on contributions at your marginal rate (subject to limits prescribed by HMRC)
        • Exempt from inheritance tax due to being classified as held outside of your estate

        Disadvantages include:

        • Can be riskier, especially if you’re a less experienced investor
        • Often incur higher charges than standard personal pensions or stakeholder pensions
        • You can’t access your money until you’re 55 (increasing to 57 in April 2028)
        • In most cases, only 25% of your pension pot will be accessible tax-free

        SIPP rules

        If you’ve never held retirement funds within a SIPP before, or if you have and would like a reminder, outlined below are all the main rules you need to be aware of surrounding tax allowances and benefits.

        SIPP contributions each tax year of up to the lower of 100% of your gross earnings or the annual allowance of £40,000 will be eligible for basic tax relief at 20%, assuming you do not have access to carry forward.

        This means that for every £80 you contribute, the government makes it up to £100. This is administered by your pension provider and happens automatically, known as tax relief at source.

        If you pay income tax at a higher or additional rate, you’re entitled to a further 20% or 25% tax relief, but this has to be actively claimed back via self assessment.

        When you include your pension contributions in your return, including the basic tax relief, your tax liability is reduced, effectively meaning that your pension contributions cost you less.

        There’s no limit to the number of SIPPs you can have alongside the state pension or workplace pensions, but there is a cap on how much you can contribute across all of your pensions in any financial year.

        The current allowance is £40,000 or 100% of your gross annual income, whichever is lower. Contributions over this amount won’t be eligible for tax relief and will incur an annual allowance tax charge.

        It’s important to remember that these allowances include tax relief and employer contributions as well as your own – it’s the total amount of money paid in from all sources across all your pensions.

        As well as an annual SIPP allowance, you have a lifetime allowance of £1.073 million, currently frozen until 2026. This assumes you have not opted for any sort of lifetime allowance protection (such as Individual or Fixed).

        If the value of all of your pensions go above your lifetime allowance, you will be subject to a lifetime allowance charge if a Benefit Crystallisation Event (BCE) takes place. This allowance does not represent contributions – it relates to the value of the pot, so you need to be aware of it as your pension grows.

        If you think you’re at risk of going over either your annual or lifetime SIPP allowance then speak to an independent pensions advisor for advice on how best to proceed.

        Speak to a expert today

        Withdrawing money from a SIPP

        When you reach the minimum pension age (currently age 55 but increasing to age 57 in April 2028) you have a few options when it comes to taking money out of your SIPP. If you’re still working and don’t need the income yet, simply carry on paying into your SIPP without withdrawing any money.

        If you do want to access some of your cash, you have several choices, or you can opt for a combination:

        • Take a tax free lump sum – you can take up to 25% of your SIPP completely tax free, perhaps to pay off a mortgage, and save the rest for later. Some may be eligible to take a higher percentage of tax-free cash but this is rare and usually with older pension schemes.
        • Flexi-Access Drawdown (FAD) – After partially or fully crystallising your pension fund, you can set up a regular taxable income or take taxable one-off payments from your crystallised pot when required. If you take more than your personal allowance in any tax year you will be eligible for income tax on payments from your crystallised pot.
        • Multiple lump sums (UFPLS) – rather than taking one lump sum tax free, you can choose instead to take a series of lump sums, as and when you need them, with the first 25% of each one being tax free and the remaining 75% of each payment being subject to tax at your marginal rate.
        • Buy an annuity – you can choose to use the cash from your SIPP to buy an annuity, a guaranteed income until you die in return for a fixed sum.

        You can continue to pay into a SIPP even after you’ve taken money from it, but once you take taxable income from your SIPP, your annual allowance is set at £4,000 per year. This is called the Money Purchase Annual Allowance (MPAA).

        Types of self-invested personal pension

        There are several different types of SIPP offering varying features and benefits, and deciding which type of SIPP will suit you best is an important first step.

        Full SIPP

        A full SIPP, sometimes also called a pure SIPP, is the bells and whistles version, with the widest range of investment options, including commercial property.

        A full SIPP often comes with more investment advice and support from your provider, but they can also often incur higher charges. They are normally best suited to people with larger pension pots.

        If you think a full SIPP is the right option for you then you’re best to speak to an independent pensions advisor who can help you compare terms and charges.

        Low-cost SIPP

        Sometimes called a simple SIPP, a DIY SIPP or a lite SIPP, a low-cost SIPP is a popular choice for investors who still want a good mix of investments but who perhaps don’t need the more niche options or level of advice that you find in a full SIPP.

        Simple SIPPs normally come with lower fees too, so are a more straightforward, affordable savings option.

        Popular DIY SIPP platforms come from providers like AJ Bell, Fidelity, Vanguard and Hargreaves Lansdown. It’s still useful to get independent advice before choosing which provider is right for you, as their fees and investment options will vary.

        Ready-made SIPP

        If you’re keen to get started with a SIPP but aren’t sold on the idea of having to make your own investment decisions, then a ready-made SIPP, sometimes called a robo-advisor SIPP, could be a good choice for you.

        With a ready-made SIPP you simply choose from a range of managed funds, depending on your personal attitude to risk or personal values, and then let the provider do the work for you.

        Group SIPP

        Although a SIPP can only be held by an individual person, multiple SIPPs can come together under one umbrella to form a group SIPP.

        This is sometimes done within a family or amongst business partners, or a company can decide to set up a group SIPP for its employees as a more flexible alternative to a traditional workplace pension.

        The main benefit of a group SIPP is that you are pooling resources and so have increased buying power, which can be particularly useful if you’re investing in commercial property.

        Deferred SIPP

        These start as personal pensions but are written under a SIPP Trust in order to share some of the main benefits (mainly the wider investment options available). You can then switch to a full SIPP before reaching retirement age.

        How do SIPPs compare to other types of pension?

        If you live and work in the UK there are three main types of pension:

        • the state pension, which is relatively out of your hands, set by the government and determined by your national insurance contributions
        • a workplace pension, set up and paid into by both you and your employer
        • a personal pension, which you arrange yourself.

        You can have all three of these at the same time, including multiple workplace or personal pensions and contribute into as many as you’d like, although it is important to note that your pension allowances remain the same regardless of how many pension schemes you contribute into.

        Workplace pensions are set up by your employer and they normally set the terms and require you both to pay in.

        They can either be defined contributions, with the amount you get on retirement determined by the investment performance, or defined benefit, where you’re guaranteed a certain pension based on your final salary, the amount of time you have been a contributing member of the scheme, and the scheme accrual rate.

        With a workplace pension you’re benefiting from the employer making additional contributions, but you will usually have a lot less flexibility when it comes how your funds are invested.

        If it’s a choice between a workplace pension and a SIPP, a workplace pension is often the best option, as it’s essentially free money from your employer. That doesn’t mean you can’t have a workplace pension and a SIPP though if you have the income available to invest in both.

        Personal pensions are pensions that you set up and manage yourself. They are always defined contribution pensions, but unlike a workplace pension you get to choose who you hold your pension with and exactly how much you contribute.

        You can choose between a standard personal pension, a stakeholder pension or a SIPP. The same tax relief and allowance rules apply to all three, the difference really is with costs and flexibility.

        You can read more about these in our complete guide to personal pensions.

        Just to make things even more complicated, some employers choose to set up a workplace SIPP for their employees – a collection of individual SIPPs that together form a group SIPP.

        You can also ask your employer to contribute to your personal SIPP rather than a workplace pension, even if they don’t have a group SIPP set up, although there is no obligation on their part to agree to this.

        How to open a SIPP

        If you’ve made it this far and think that a SIPP sounds like a good match for you and your retirement goals, then what next? How do you go about actually opening a SIPP?

        Let’s take a look at some key steps:

        Get matched with an independent pensions advisor

        Setting up a SIPP is a big decision and you’d be taking a big risk jumping into such a significant, long-term investment without taking on some expert advice.

        An independent pensions advisor can help you review your retirement provision to date, talk to you about your attitude to risk and the type of investments that might appeal to you.

        Fortunately our free advisor-matching service can help you here – make an online enquiry now and we’ll set up a no obligation chat with an independent, pre-vetted advisor.

        Decide what to do with existing pension pots

        Is your SIPP going to be a way to consolidate existing pensions into one easy-to-manage pot or will it be an additional pension, running alongside savings you already have?

        We go into further detail about how to transfer pensions into a SIPP later in this article, but now is a good time to work with your pensions advisor to assess the providers and performance of any existing pensions, and to decide how you want to manage them going forward.

        Choose your provider

        Once you’re clear on your investment goals, your pensions advisor will be able to help you choose the SIPP provider who offers the best combination of freedom and affordability for you.

        When you’re happy with your choice, you’ll need to provide them with some basic details about yourself to set up your SIPP, including your national insurance number.

        You can often do this quickly and easily online or via the provider’s app if they have one. If you’re transferring in existing pensions you’ll need to give details of these to your new SIPP provider and they will manage the transfers on your behalf.

        SIPP providers and rates

        There are dozens of SIPP providers in the UK, so choosing the right one for you will depend on many factors. Each will have different fee structures, which may suit investors differently depending on your pension size and asset mix, and some may offer broader investment options. Others might be appealing based on ease of use, for example providers like Freetrade and Nutmeg, who let you manage your SIPP via an app.

        Even the popular simple SIPP providers like Interactive Investor, AJ Bell and Fidelity will have different terms and benefits, and it can be hard to weigh up the options, especially when it comes to assessing fee structures. A pensions advisor can help you here.

        SIPP borrowing rules

        Although a SIPP is first and foremost a savings vehicle, it is possible for a SIPP to borrow money as a way to increase investment options and accelerate growth. Typically this is done to purchase commercial property, either as an investment, leased to a third party, or to purchase business premises that you can then lease back from the pension.

        A SIPP can borrow up to 50% of the net fund value to purchase a commercial property, essentially taking out its own SIPP mortgage. If the SIPP is currently valued at £300,000 for example, it could borrow up to £150,000.

        There are strict rules around SIPP loans. It’s commercial property only and you need to have plenty of evidence that the rent payments are going to be reliable, as these will be going back into the SIPP to pay off the loan.

        Self-employed SIPPs

        A SIPP can be a great choice if you’re self-employed or a contractor and don’t already benefit from a workplace pension. If you are trading as a limited company you can make contributions into your SIPP directly from the company and benefit from additional savings.

        If you’re thinking of setting up a SIPP as a freelancer or making SIPP contributions via a limited company then it’s worth getting some input from an independent pensions advisor to make sure you’re doing it as tax efficiently as possible.

        Transferring to and from your pension

        Although there are often benefits to transferring a pension, such as lower ongoing fees, more investment options or consolidating multiple pensions into one pot, it’s important to be aware of any specific entitlements you might be sacrificing.

        Some older pensions for example may offer guaranteed annuity rates or tax free lump sums of more than the standard 25%. You may also find some providers charge significant exit fees.

        If you currently have funds with a cash equivalent transfer value (CETV) of over £30,000 in a defined benefit scheme, or a hybrid scheme with a defined benefit element, you will need to present your new provider with evidence that you have taken regulated financial advice to make sure that the transfer is in your best interests.

        Once you’re happy with the decision, the logistics of transferring into a SIPP are theoretically straightforward, similar to switching your gas or electricity providers – simply give your national insurance number and the details of the pensions you want to transfer to your new provider and they will manage the rest.

        Get matched with a SIPP specialist

        While the actual setting up of a SIPP can be straightforward, the long term planning around how to make the most of its tax efficiencies, choosing the right balance of investments for you and making sure you stick within your allowances can be much more complex. Fortunately the pensions advisors we work with offer a free, no obligation pension review service, helping to give you peace of mind about your financial future.

        Give us a call on 0808 089 0463 or make an online enquiry and we’ll take a look at your circumstances and arrange a chat with the independent SIPP advisor that we think is the best match for your needs.

        Speak to a expert today


        Yes, you may be able to use the carry forward rule to contribute more than £40,000 (gross) in any tax year if you haven’t used your full allowance in one or more of the previous three.

        To be eligible you must have been a member of a pension scheme in the years you want to carry forward, have used your full allowance in the current year and have earned at least as much in the current year as you are contributing in total.

        As many as you like. There’s no limit to the number of SIPPs you can hold and many people find it useful to have multiple SIPPs to allow for specialisms in particular asset types.

        The important thing is to remember that both your annual and lifetime SIPP allowance apply to your total contributions across all SIPPs, not to each individually.

        Yes, anyone investing in a SIPP is protected by the Financial Services Compensation Scheme for up to £85,000 per bank or building society. If you’re worried about the risk of holding over £85,000 in one SIPP, you could consider holding multiple SIPPs.

        A pensions advisor can help you make sure the different providers you invest with are using different banks so as to maximise your compensation entitlement.

        You can nominate a beneficiary or beneficiaries to inherit your SIPP when you die. If you are under 75 when you die, they can take money from your SIPP tax free.

        If you are over 75 they will pay income tax on withdrawals at their personal rate. But the rules surrounding this can be much more nuanced, so it is best to speak with a pensions advisor who can outline all the different permutations in more detail.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Tony Stevens

        Tony Stevens

        Finance Expert

        About the author

        Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

        Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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