What Is a SIPP? A Beginner’s Guide to Self-Invested Personal Pensions

By Team SalaryCalculate · 7/8/2025

What Is a SIPP?

A Self-Invested Personal Pension (SIPP) is a type of personal pension that gives you greater control and flexibility over how your retirement savings are invested.

Unlike standard workplace or personal pensions — where the provider usually controls the investment options — a SIPP lets you choose your own investments from a wide range, including:

• Individual stocks and shares
• Investment trusts
• Exchange-Traded Funds (ETFs)
• Commercial property
• Government and corporate bonds
• Mutual funds and OEICs

SIPPs are often described as a "DIY pension" because you manage how your pension pot is invested — although you can also appoint a financial adviser or wealth manager to help.

How a SIPP Works

Here’s a basic outline of how a SIPP operates:

1. You open a SIPP account with a provider such as AJ Bell, Hargreaves Lansdown, or Interactive Investor.
2. You contribute money, either as regular payments or lump sums.
3. The government adds tax relief to your contributions.
4. You choose where to invest your money.
5. Your investments (hopefully) grow over time.
6. Once you reach age 55 (rising to 57 from 2028), you can start drawing from your SIPP.

Tax Relief on Contributions

One of the biggest advantages of a SIPP is the tax relief:

• If you’re a basic rate taxpayer, a £100 contribution only costs you £80 — the government adds £20 (20% tax relief).
• Higher and additional rate taxpayers can claim even more through their tax return — up to 40% or 45% total tax relief.

Annual and Lifetime Limits

• Annual Allowance: Up to £60,000 per year (2024/25) — though this can reduce to £10,000 for very high earners due to the Tapered Annual Allowance.
• Lifetime Allowance: Abolished as of April 2024 — but watch for new lump sum limits that may apply instead.

Learn more: HMRC: Tax on your private pension contributions

What Can You Invest in With a SIPP?

SIPPs are highly flexible. You can invest in:

⚠️ Always check your provider’s list of allowed investments, as it varies.

Popular SIPP Providers in the UK

Each has pros and cons depending on your experience, goals, and pot size.

SIPP vs Other Pension Types

SIPPs are particularly useful for:

• Self-employed individuals
• Freelancers and contractors
• Those wanting more investment choice or control
• Investors consolidating multiple old pensions

Withdrawing from a SIPP

You can access your SIPP from age 55 (rising to 57 from April 2028):

• 25% tax-free lump sum
• Remaining 75% can be:
  • Taken as income (subject to tax)
  • Left invested for growth
  • Used to buy an annuity
  • Withdrawn as lump sums

Withdrawals may affect your eligibility for state benefits or trigger the Money Purchase Annual Allowance (MPAA), which reduces your future contribution allowance to £10,000.

SIPP Example: Tax Relief in Action

Higher and additional rate taxpayers claim extra tax relief via their Self-Assessment tax return.

How to Open a SIPP

1. Choose a provider (compare based on fees, investment options, tools).
2. Complete the application online.
3. Decide how much to contribute (regular or lump sum).
4. Choose investments (or leave as cash until ready).
5. Track and manage your pension via your account.

You can also transfer existing pensions into a SIPP, but check for:

• Exit fees
• Loss of guaranteed benefits
• Tax implications

See: MoneyHelper: Transferring your pension

Risks to Consider

• Your investments can go down as well as up.
• You are responsible for managing your portfolio (unless advised).
• Charges can erode returns, especially for smaller pots.
• Overexposure to high-risk assets can reduce your retirement income.
• DIY investors may underperform the market or make emotional decisions.

If unsure, consider speaking with a regulated financial adviser.

Summary: Is a SIPP Right for You?

SIPPs offer great flexibility, control, and tax advantages — but they’re not for everyone. They suit:

✅ Confident investors
✅ Self-employed people
✅ Consolidating pensions
✅ Seeking specific investment exposure

But they may not suit those who:

❌ Prefer hands-off investing
❌ Need employer contributions
❌ Are unsure how to build a portfolio

Useful Resources

• GOV.UK – Tax on private pensions
• MoneyHelper – Choosing a pension
• AJ Bell SIPP Guide
• Hargreaves Lansdown SIPP
• FCA Register – Find a regulated adviser
• MoneySavingExpert – Pensions