SIPPs: self-invested personal pensions explained

A self-invested personal pension, usually shortened to SIPP, is a type of defined contribution pension where you choose the investments yourself rather than having a provider pick them for you¹. Instead of being placed in a default fund chosen by an employer or insurer, your money goes into a wrapper that can hold a range of thousands of shares, exchange-traded funds (ETFs) and mutual funds, and you decide how it is split². Close to one million pension savers, 960,000, opened a SIPP in 2024, an increase of 30% compared with 2022¹.

The tax treatment is the same as other pensions: your money grows free of income tax and capital gains tax, you get tax relief on contributions, and you can take up to 25% of the pot as a tax-free lump sum, up to a maximum of £268,275, from the age of 55¹. What differs is control and cost. You choose the investments, you carry the risk if they perform badly, and there is no cap on SIPP fees, unlike workplace schemes which are allowed to charge a maximum of 0.75% a year¹.

What a SIPP is and how it differs from other pensions

A SIPP is a personal pension, which means it is a pension you set up yourself rather than one an employer enrols you into. Like all defined contribution pensions, the size of your retirement pot depends on how much goes in and how the investments perform: there is no promised income as there is with a defined benefit or final salary pension. What marks a SIPP out is that it allows you to hold multiple investments and products, so you can manage your pension fund yourself and have more control over where the money sits⁶.

The comparison that matters most is with a standard personal pension. A conventional personal pension typically offers a menu of funds chosen by the provider, while a SIPP opens the door to a much wider range: thousands of shares, ETFs and funds, plus in some cases other assets². Some SIPPs sit between the two, offering a limited investment list with lower charges, so the line between a "personal pension" and a "SIPP" is blurrier than it once was. Moving between them is straightforward: it is easy to transfer a personal pension to a SIPP if you want the additional investment choice and flexibility, or to move a SIPP to a personal pension, by contacting your new pension provider⁷.

Against a workplace pension, the differences are sharper. A workplace pension comes with employer contributions under automatic enrolment, a default fund chosen for members who do not want to choose, and a legal cap of 0.75% a year on the charges default funds can make¹. A SIPP has none of these protections: no employer is obliged to pay in, there is no default fund unless the provider offers a ready-made option, and no cap on fees¹. A SIPP can sit alongside a workplace pension, with some people paying into both, and the SIPP vs workplace pension comparison sets out how they stack up.

Tax relief on contributions: 20p added to every 80p

Tax relief is the main financial incentive to save into any pension, and a SIPP gets the same treatment as any other personal pension. For every £80 you pay in, the government tops it up with an additional £20 of basic-rate relief, turning your contribution into £100 in your pension³. Put another way, for every 80p basic-rate taxpayers add to their pension, the government adds a further 20p¹. The relief is claimed by the pension provider and added to your pot automatically, so you do not need to do anything to receive it.

Higher and additional rate taxpayers can claim more, but not automatically. Higher-rate taxpayers can claim a further 20% tax relief through their self-assessment tax return, and additional-rate taxpayers an extra 25%⁸. This extra relief is claimed back from HMRC, not added to the pension: it reduces your income tax bill for the year. The government tops up contributions by 20% up to the annual allowance, and the further relief for higher earners is a separate step you must take yourself⁹. The dedicated guides to pension tax relief and claiming higher-rate relief cover the mechanics, and Scottish taxpayers follow their own income tax bands, explained in pension tax relief for Scottish taxpayers.

One point of caution: some providers describe SIPP tax relief in different ways, with one stating relief of 20% and another describing relief of 20% to 48% depending on circumstances.

How much you can pay in: the £60,000 annual allowance

Tax relief is capped each tax year by the annual allowance, set at £60,000¹⁰. You can contribute 100% of your annual income to your SIPP each tax year, up to that maximum, so the practical limit is the lower of £60,000 or 100% of your earnings⁴. If you earn less than £60,000, your limit is your earnings; if you earn more, the cap is £60,000 across all your pensions combined, not per pension¹¹.

The allowance covers contributions to all your pensions together, including any workplace scheme, so paying into both does not double the limit¹¹. People who have already started drawing taxable retirement benefits may face a lower limit, the money purchase annual allowance, and very high earners can be affected by the tapered annual allowance. The annual allowance page explains both, and carry forward explains how unused allowance from the previous three tax years can sometimes top up this year's limit.

There is also a rule for people with little or no earnings, including children: up to £2,880 can be paid into a Junior SIPP each year, with the government adding £720 in basic tax relief, taking the total to £3,600¹². This is how pensions for children work, covered in full in Junior SIPPs. And on the question of what happens at 75: personal contributions paid before age 75 count towards the annual allowance, so the £60,000 limit applies up to that birthday, and the rules on paying in after 75 cover what changes afterwards¹³.

Transferring pensions into or out of a SIPP

A pension transfer means moving money from one personal pension to another, or from a personal or workplace pension to a SIPP, a small self-administered scheme or a qualifying overseas scheme¹⁴. People transfer into a SIPP for the wider investment choice, to consolidate several old pots into one place, or to move to lower charges. Transfers out of a SIPP work the same way in reverse, and moving between a personal pension and a SIPP is done by contacting the new provider, who then requests the money from the old one⁷.

Before transferring, the old pension needs checking for things that would be lost. Some older policies carry guaranteed annuity rates or other guarantees that have no equivalent in a SIPP, and some charge exit fees. Transfers out of final salary pensions carry particular weight because they give up a guaranteed income, and the rules on when advice is required to transfer mean a regulated adviser must sign off most transfers of this kind. The Financial Ombudsman has dealt with cases where a consumer was unhappy after being recommended to transfer an existing pension into a new SIPP, and its guidance on transfers from personal pension arrangements sets out what it can look at¹⁴.

Transfers are also a moment of scam risk. Pension scams often begin with an offer to move your money into a scheme with unusual investments or "guaranteed" returns, and once transferred, money is hard to recover. The warning signs and where to get help are covered in pension scams, and free guidance on transfer decisions is available from Pension Wise. If a transfer drags on, what to do if a transfer is delayed explains the escalation route.

Taking money out: the minimum age rises from 55 to 57

Money in a SIPP cannot normally be taken until a minimum age set by law. Since April 2010, the minimum age when you can take your workplace or personal pension has been 55 for most people, having increased from 50 before then¹⁶. From 2028 this rises to age 57⁵. The change is a shift in the normal minimum pension age, not a rule about any particular product, so it applies to SIPPs and personal pensions alike, and anyone planning to retire in their mid-fifties needs to factor it in.

Once you reach the minimum age, the options are the same as for any defined contribution pension. You can take up to 25% of the money in your SIPP as a tax-free lump sum, up to a maximum of £268,275, and the rest is taxed as income as you draw it¹. The main routes are drawdown, lump sums through UFPLS, or buying an annuity, and they are compared in your options for taking money. Withdrawals can be hit by emergency tax codes at first, explained in emergency tax on withdrawals, and how the remaining income is taxed is covered in tax on pension income.

One practical point after taking money: some providers offer a cooling-off period on withdrawals, often 30 days, allowing you to reverse the withdrawal, though eligibility depends on when and how you accessed your tax-free cash¹⁷. The rules on taking money early because of ill health are different, and are covered in taking your pension early through ill health.

Where a SIPP may not suit you

A SIPP is not automatically the right home for retirement savings, and the industry's own guidance is candid about who these products suit. SIPPs are generally for more experienced investors who have larger sums to invest¹⁸. The reason is cost and effort: with no cap on SIPP fees, charges vary widely between providers and structures, and a SIPP only pays off where the wider investment choice is something you will actually use¹.

Charges are the deciding factor for most people. Percentage-based fees are generally cheaper for smaller pots, and flat annual fees are often more cost-effective for larger pots over £50,000². A SIPP with a flat fee can work out expensive on a small pot, because the fee eats a larger share of the money, while a percentage fee on a large pot can dwarf a flat-fee alternative. Providers also differ in what they charge for: some price by menu, with separate fees for administration, dealing and holding particular assets¹⁹. Before opening one, the SIPP or standard personal plan comparison sets out the trade-off, and combining pension pots or keeping them separate helps with the consolidation question.

A SIPP may also not suit someone who does not want to make investment decisions at all. Being more hands-on with pension investments suits some savers and not others, and a workplace default fund or a ready-made personal pension does that work instead². For people who want simplicity, a standard personal pension or a workplace scheme remains a legitimate choice, and for the self-employed, the pensions for the self-employed guide covers the full range of options, of which a SIPP is one²⁰.

Protection and your rights

SIPPs are regulated personal pensions, and the firms that run them are authorised by the Financial Conduct Authority. Because self-invested personal pensions are classed as "uninsured" pension schemes, as opposed to contracts of long-term insurance, the protection that applies if a provider fails follows the rules for investment business rather than insurance contracts²¹. The comparison between the Pension Protection Fund and the FSCS, in PPF vs FSCS protection, explains which regime covers which kind of pension.

Investments held in a SIPP are your assets, held in your name within the pension wrapper, which is what separates provider failure from investment losses. If the investments themselves fall in value, that loss is yours: no compensation scheme covers poor investment performance. This is the core risk of self-investment, and it is why the guidance points SIPPs towards more experienced investors with larger sums¹⁸.

Two further rights are worth knowing. First, cancellation: there is no right to cancel a contract to join a SIPP whose performance has been fully completed by both parties at the consumer's express request before the consumer exercises the right to cancel, so once a transfer in has fully completed at your request, the usual 14-day cancellation right may not apply²². Second, death benefits: a SIPP is held within a trust wrapper, so it is administered separately from your will, and the trustees follow your expression of wish to pass the pension to your nominated beneficiary²³. From 6 April 2027, SIPP money left to beneficiaries will be included when calculating the inheritance tax due on your estate, a change covered in pensions and inheritance tax²³.

If something goes wrong with advice or a transfer, complaints can be taken to the provider first and then to the Pensions Ombudsman or the Financial Ombudsman Service, depending on what the complaint is about, and mis-selling of a financial product is a recognised ground for complaint⁶. Free, impartial guidance is available from Pension Wise, and MoneyHelper offers general help with pensions and complaints.