A SIPP gives you the most control over your pension investments, combining the tax advantages of any pension with the flexibility to choose exactly where your money is invested. Whether you are self-employed, want to consolidate old pensions, or simply want more investment choice, a SIPP could be an important part of your retirement plan.
How a SIPP Works
- You make contributions (and/or transfer existing pensions in)
- HMRC adds tax relief automatically (basic rate) and via Self Assessment (higher/additional rate)
- You choose how to invest the money from a wide range of options
- Your investments grow free of income tax and capital gains tax
- From age 57 (currently 55), you access the money via drawdown or annuity
Tax Advantages
| Benefit | Detail |
|---|---|
| Tax relief on contributions | 20%, 40%, or 45% depending on your tax band |
| Tax-free growth | No income tax on dividends, no CGT on gains |
| 25% tax-free lump sum | At retirement, take 25% completely tax-free |
| Inheritance | Passed on free of IHT (outside your estate) |
| Annual allowance | Up to £60,000/year (or 100% of earnings if less) |
Tax Relief Example
| Your Tax Rate | You Pay | HMRC Adds | Total in SIPP |
|---|---|---|---|
| Basic (20%) | £800 | £200 | £1,000 |
| Higher (40%) | £600 | £400 | £1,000 |
| Additional (45%) | £550 | £450 | £1,000 |
Higher and additional rate relief is claimed through your Self Assessment tax return.
What You Can Invest In
SIPPs offer a much broader range of investments than most workplace pensions:
| Investment Type | Typical Availability | Risk Level |
|---|---|---|
| Index funds | All SIPPs | Medium |
| ETFs | Most SIPPs | Medium |
| Individual shares | Most SIPPs | Higher |
| Investment trusts | Most SIPPs | Medium-Higher |
| Bonds and gilts | Most SIPPs | Lower-Medium |
| Cash | All SIPPs | Lowest |
| Commercial property | Full SIPPs only | Higher |
For most people, a portfolio of low-cost index funds provides the best balance of growth, diversification, and simplicity.
Choosing a SIPP Provider
| Provider | Annual Fee | Fund Charges | Best For |
|---|---|---|---|
| Vanguard | 0.15% (max £375) | From 0.06% | Low-cost index fund investing |
| InvestEngine | 0% (DIY) | From 0.05% | ETF-only, fee-free |
| AJ Bell | 0.25% (max £120 for funds) | Varies | Shares and funds |
| Hargreaves Lansdown | 0.45% (reducing) | Varies | Wide choice, research tools |
| Interactive Investor | £5.99–£11.99/month flat | Varies | Larger portfolios |
| Fidelity | 0.35% (reducing, max £45 for ETFs) | From 0.06% | Good range, competitive |
For portfolios under £50,000, percentage-fee providers (Vanguard, Fidelity) are typically cheapest. For larger portfolios, flat-fee providers (Interactive Investor, InvestEngine) become better value.
See our investment platform comparison for a detailed breakdown.
SIPP vs Workplace Pension
| Feature | SIPP | Workplace Pension |
|---|---|---|
| Employer contributions | No | Yes |
| Investment choice | Full range | Limited menu |
| Fees | 0.15–0.45% typical | 0.3–0.75% typical |
| Salary sacrifice available | No | Often yes (saves NI too) |
| Best for | Self-employed, extra contributions, choice | Employed people (get the match!) |
The golden rule: Always contribute enough to your workplace pension to get the full employer match before opening a SIPP. An employer matching 5% is an immediate 100% return on your money.
How to Open a SIPP
- Choose a provider based on your portfolio size and investment preferences
- Complete the application online (typically 15-30 minutes)
- Set up contributions — regular direct debit or lump sum transfers
- Choose your investments — or start with a target-date fund while you decide
- Transfer old pensions (optional) — the new provider handles the paperwork
Consolidating Old Pensions
If you have multiple old workplace pensions, transferring them into a single SIPP:
- Simplifies management — one pot, one login, one investment strategy
- Reduces fees — old pensions often have higher charges
- Improves investment choice — choose from the full SIPP range
- Provides clarity — easier to track progress towards retirement goals
Caution: Before transferring, check for valuable guarantees (guaranteed annuity rates, defined benefit pensions) or exit penalties. Never transfer a defined benefit pension without independent financial advice.
See our pension transfers guide for the full process.
Accessing Your SIPP
From age 57 (currently 55, rising to 57 in April 2028):
Option 1: Flexi-Access Drawdown
Keep your SIPP invested and draw income as needed:
- Take 25% tax-free (all at once or in stages)
- Draw the rest as taxable income at your marginal rate
- Remain invested for potential growth
- Control how much you withdraw each year
Option 2: Buy an Annuity
Convert some or all of your SIPP into a guaranteed income for life. See our annuity guide.
Option 3: Take Lump Sums (UFPLS)
Take withdrawals as lump sums — 25% of each withdrawal is tax-free, 75% is taxed as income.
For a complete overview of retirement income options, see our retirement income guide.