Updated: April 08, 2024
How to Set Up a SIPP
If you’re thinking about opening a SIPP, this guide explains the process from beginning to end
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Self-invested personal pensions (SIPPs) give you more freedom than other pension types, but to use that freedom effectively, you need to learn a lot more about how they work. Even setting up a SIPP can seem like a daunting task.
To help you get started, here’s an overview of the steps involved, the costs, and the timings. Remember that every SIPP is unique, and they can be simple or complex depending on your needs, so the details will be different for everyone.
The following topics are covered below...
How do you set up a SIPP?
Setting up a SIPP isn’t just a matter of opening one (that part is easy), but also selecting investments, establishing regular contributions, and potentially transferring in other pensions.
Below are the five steps involved.
Choose a provider
Choosing the right SIPP provider is perhaps the most important step in the process. The fees charged by different providers vary enormously, so cost will likely be a major factor in your decision.
You’ll need to decide whether you’re looking for the cheapest option or whether other factors are more important, such as:
- The range of investments the provider gives access to
- The quality of the provider’s customer service
- The ease of managing your account online
- The other tools available, such as apps
Decide which pensions you want to transfer in
You likely have one or more existing pensions that you can transfer into your SIPP, if you want, when you open it. You can also do this later. You might decide to transfer in your existing pensions to make it easier to manage all your retirement savings in one place and to avoid losing track of a pot of money.
Alternatively, you might decide against it if your existing pension offers benefits that your SIPP doesn’t, such as protected tax-free cash lump sums. If you’re not sure whether you would lose benefits by transferring a pension, it’s crucial to seek expert advice.
Open your SIPP
Once you reach this step, opening a SIPP is straightforward. Many providers allow you to do this online. They’ll supply several important documents during this process, including a key features document and terms and conditions, so make sure you understand these before continuing.
Set up your contributions
Your SIPP can receive contributions from you, your employer, or another third party. You can set up personal contributions yourself. If your employer (or anyone else) will be making contributions, you’ll need them to complete some paperwork and return it to your SIPP provider.
At this stage, you’ll need to make decisions about how much you’d like to contribute to your SIPP, either as a one-off payment or on a regular basis, and how much you’d like your employer to deduct from your pre-tax income (both salary sacrifice or relief at source are available).
If you’re a contractor or director of a limited company, you can either make personal contributions or ‘employer’ contributions through your business (or a combination of the two). Generally, it’s more tax efficient to make contributions through your company if you’re a limited company director, although this will depend on your individual circumstances.
Make your investment decisions
SIPPs can invest in a broad range of investment options, such as individual company shares, unit trusts and other investment funds, gold, cash, and commercial property. You’ll need to choose which investments are right for you, from the options your provider gives access to.
This involves deciding how much risk you’re comfortable taking. Risk is an integral part of investing and, without taking some risk, your retirement savings might not grow enough to retain their value against inflation. However, if the value of your savings is fluctuating so much that it causes you concern, you’re probably taking too much risk.
Ask yourself whether you’re confident choosing your investments and managing your risk level on your own. If you’re not, the alternative is a discretionary investment management service, where, for a fee, you authorise a discretionary fund manager to make decisions on your behalf.
Opening a SIPP to buy property
SIPPs are very popular with self-employed people and business owners. One common reason that business owners might open a SIPP is that it is usually the most tax-efficient way to own a commercial property.
If you’re opening a SIPP to buy property, it’s wise to go through it with the help of a pensions advisor rather than trying to do it yourself, as the process is complex.
Here’s an outline of the steps you might take:
- Choose a provider that allows you to own commercial property within your SIPP
- Calculate how much you need to buy a commercial property and how much of this you currently have in other pensions
- Open a SIPP and make transfers in from your other pensions
- Make a new contribution to your pension, if needed (being sure to remain within your annual allowance)
- Take out a mortgage, if needed, for up to 50% of your SIPP value
- Buy the commercial property of your choice
You can read more in our guide to buying a commercial property with a SIPP.
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How a pensions advisor can help set up your SIPP
Unless you have extensive experience managing investments, it’s wise to seek expert advice before making major decisions that will affect your retirement income. There are various ways an independent advisor can help you set up your SIPP.
They can answer questions such as:
- Which provider offers the best SIPP for your needs?
- Should you transfer in your existing pensions or leave them where they are?
- How much should you contribute to your SIPP?
- Which is the most tax-efficient way for you to contribute?
- What are the tax rules regarding SIPPs?
- What type of investments will help you meet your objectives?
- How much risk can you responsibly take?
- How can you diversify your investment portfolio to avoid excessive risk?
- What are the rules around borrowing through your SIPP?
- What are the rules around owning property through your SIPP?
If you’d like us to put you in touch with an independent advisor we work with, enquire here.
How much will it cost?
Many providers don’t charge a fee to set up a SIPP. Those that do tend to offer a broader range of features and functionality or investment options. If you don’t need these features or options, you can choose a SIPP that’s free to open.
All providers charge management fees. Some charge a flat fee, e.g. £9.99 per month, while others charge a percentage of your pension value, e.g. 0.5% annually. There may be additional fees for using a platform to manage your pension or for buying or selling investments. If you invest in funds, each fund carries its own additional charge.
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How long will it take?
Opening a SIPP can take as little as 30 minutes if you complete the process online. You’ll need your National Insurance number, bank account information, and details of any pensions you want to transfer in.
The other steps involved in setting up your SIPP take longer. For example, you might spend time comparing different SIPP providers. It may take a few weeks for your employer to process the paperwork to begin making contributions. It usually takes up to 30 days to transfer in a SIPP from another provider.
Get matched with an independent pensions advisor
While the steps involved in setting up a SIPP are broadly the same for everyone, the details are unique to you. You likely have many questions about the best way to do it and, to answer them, you’ll need independent, personalised advice.
We work with numerous pensions advisors who specialise in SIPPs and can advise you at every stage. If you’d like us to put you in touch with someone for a free, no-obligation chat, just give us a call today on 0808 189 0463 or enquire here.
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.
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.
