What is a Self-Invested Personal Pension (SIPP)?

What is a SIPP and how does it work?

A SIPP is a type of private pension that gives you control over investment decisions, allowing you to build your retirement portfolio from a wide range of asset classes, including individual shares, bonds, investment trusts, ETFs, and even commercial property in some cases.

Unlike workplace pensions where your employer chooses the pension provider and that provider usually offers a fairly limited range of investment options, SIPPs put you very much in the driving seat. You select the SIPP provider yourself, you decide which investments to hold in your SIPP, and you decide when to sell certain investments or diversify into additional asset classes.

SIPPs work on Defined Contribution principles, which means your future retirement income will depend on how much you contribute, how your investments perform while you hold them, and how you decide to access your pension benefits once you retire.

You receive tax relief on your contributions to a SIPP just like you do with other types of pensions, with the government effectively topping up your savings by 20% or more depending on your tax bracket.

Your SIPP provider acts as the pension wrapper, holding investments tax-efficiently while providing administration and regulatory oversight.

What is the difference between a SIPP and a workplace pension?

There are a couple differences between SIPPs and workplace pensions, most of which relate to decision making, pension contributions, and cost.

Deciding on a pension provider: With a workplace pension, your employer will choose the provider, whereas with a SIPP you select the provider yourself.

Investment decisions: Workplace pensions do often give pension holders a say in the investment decisions, but this will usually be limited to a small number of investment funds. By contrast, if you set up a SIPP you’ll be able to decide between thousands of different investments across a broad range of asset classes, including individual shares, bonds, funds, ETFs, and in some cases even commercial property.

Contributions: Workplace pensions include mandatory employer contributions of at least 3% of the employee’s qualifying earnings, which significantly boosts your retirement savings. In theory, employers can also contribute to your SIPP if they wish, but unlike workplace pensions there aren’t any rules requiring them to do so.

Costs: Workplace pensions benefit from economies of scale, which means they’re usually a cost effective approach to saving for retirement. The fee structure for SIPPs can be more variable, with some SIPPs charging similar fees to workplace pensions while others might have higher costs.

Can I have both a SIPP and a workplace pension?

Yes, you can have both a SIPP and a workplace pension, and many people do.

The most common approach to managing these two types of pensions simultaneously is to:

1. Maximise your workplace pension contributions in order to ensure you get the full benefit of employer contribution matching.
2. Then use a SIPP for additional retirement savings or specific investment strategies that might not be available through workplace schemes.

However, you should be mindful of the fact that there’s an Annual Allowance, which is the maximum amount you can contribute to your pensions in a single year before you face a tax liability, and this limit applies across all your pension plans combined, not on an individual pension basis. The Annual Allowance is currently £60,000, although your own personal contributions are also limited to 100% of your annual income.

What is the difference between a SIPP and a personal pension?

SIPPs are actually a type of personal pension, but with much wider investment options than those standard personal pensions usually offer.

Standard personal pensions: These might typically allow you to choose between a range of 10 to 50 different pre-selected investment funds, covering different asset classes and risk levels. The company manages the underlying investments within these funds, and you simply choose which funds to use.

SIPPs: By contrast, these offer access to thousands of individual investments. Rather than choosing from provider-selected funds, you can buy specific company shares, select from the entire universe of available investment funds, or even hold commercial property.

What is the difference between a SIPP and an ISA?

While both SIPPs and ISAs are tax-efficient wrappers, they serve very different purposes and offer distinct advantages.

Tax treatment: SIPPs provide upfront tax relief on contributions, while ISAs offer no contribution tax relief but all withdrawals are tax-free. SIPP withdrawals are taxable (except the 25% tax-free lump sum), while ISA withdrawals are always tax-free.

Access restrictions: SIPPs normally can’t be accessed before the age of 55 (rising to 57 from 2028), while ISAs can be accessed any time without penalties or restrictions.

Contribution limits: SIPPs currently have an Annual Allowance of £60,000, while ISAs have a £20,000 annual limit for the 2025-26 tax year.

Inheritance: At present SIPPs are treated as being outside your estate for inheritance tax purposes (although that’s due to change from April 2027), while ISAs form part of your taxable estate.

For many people, a good approach might be to use both of these savings vehicles in tandem: maximising your pension contributions while working for upfront tax relief and long-term growth, while gradually building ISA savings for flexible access before pension age or for tax-efficient income alongside pension withdrawals in retirement.

How many SIPPs can I have?

You can have multiple SIPPs with different providers, and some people do use this approach in order to access different investment platforms, spread risk across providers, or separate their different investment strategies.

However, it probably goes without saying that if you do decide to manage multiple SIPPs simultaneously this is going to add to the complexity of managing your pensions.

This approach can sometimes increase your costs too, because some SIPP providers offer lowering annual charges for bigger pension pots, which you might not benefit from if your pension savings were split across multiple SIPPs.

Who are SIPPs most suitable for?

SIPPs suit people who value having the ability to make investment decisions themselves, and who have the knowledge, confidence, and time to manage their retirement investments actively.

Experienced investors: Since they’re more likely to understand markets, asset allocation, and risk management, experienced investors are well placed to take advantage of a SIPP’s flexibility and range of options.

High earners: While high earners can often choose to contribute more to their workplace pensions if they wish, some prefer to max out their workplace contributions at the their employer’s maximum matching level and then use a SIPP to diversify their retirement savings outside that workplace pension

Self-employed individuals: Since self-employed people usually don’t have access to a workplace pension scheme, many choose to open a SIPP (although stakeholder pensions and standard personal pensions are also an option).

However, SIPPs aren't suitable for everyone. If you lack investment confidence, prefer hands-off pension management, have limited time for portfolio monitoring, or would rather rely on professional default strategies, workplace pensions or standard personal pensions may well be a better option.

Are SIPPs a good idea?

Whether or not a SIPP is a good idea for you will depend on your individual circumstances, investment knowledge, and willingness to take active responsibility for managing your investments.

It’s important to understand the positives and negatives of these pension schemes before you decide if they’re right for you.

What are the benefits of a SIPP?

• Investment flexibility: Flexibility when it comes to investment decisions is a major benefit of a SIPP. You can select from a huge universe of investment funds, hold bonds, invest in individual shares, or in some cases even include commercial property.
• Tax efficiency: SIPPs provide the same tax benefits as other pensions, with tax relief on contributions, tax-free investment growth, and 25% tax-free cash when you’re ready to access your pension. For higher and additional rate taxpayers, these tax benefits are even more valuable.
• Consolidation opportunities: Many SIPPs can accept transfers from old workplace pensions and other personal pensions, allowing you to consolidate multiple pension pots for easier management and in some cases even the possibility of lower fees.
• Control and transparency: SIPPs allow you to see exactly what investments you hold, and give you control to tweak your strategy immediately in response to changing circumstances or market conditions.
• Pension freedoms: SIPPs give you all the same pension freedoms as other Defined Contribution pensions, including flexible drawdown, allowing you to maintain investment control throughout retirement while taking income as needed.

What are the negatives of a SIPP?

• Costs: While some SIPPs have similar fee structures to workplace pensions, some do have higher annual charges as well as dealing fees.
• Investment risk: With power comes responsibility. Since you’re completely in control of your pension’s investments, if you don’t understand the asset classes you’re investing in, or make a series of poor investment decisions, there’s the risk that you could undermine your future retirement income. Similarly, because SIPPs offer such a wide range of investment options there’s a risk of over-trading or insufficient diversification.
• Time commitment: Managing a SIPP well takes time and focus, because you’ll need to regularly monitor and adjust your portfolio.
• Knowledge requirements: Managing a SIPP well also requires you to understand the assets you’re investing in, how they might be affected by different market conditions, and how their fee structures compare to other types of assets. Without this knowledge, you risk making costly mistakes.
• No employer contributions: While your employer can contribute to your SIPP if they wish, they’re under no obligation to do so. That’s why it’s a good idea to max out your employer matching within your workplace pension before contributing additional money to a SIPP.

How do SIPP contributions work?

SIPP contributions work in much the same way as other personal pensions, with tax relief automatically applied if you’re a basic rate taxpayer. If you’re in a higher tax bracket then you’ll need to claim the additional tax relief by submitting a self-assessment to HMRC.

How much can I put into a SIPP each year?

The Annual Allowance is £60,000 for most people for the 2025-26 tax year, but this maximum doesn’t just apply to your SIPP - it will be based on the total contributions to all your pensions, including workplace pensions. The Annual Allowance also doesn’t just cover your own contributions, so your employer’s contributions will count towards it too.

When it comes to your own pension contributions, you’ll also only be able to contribute up to 100% of your annual income in any one year.

There are also three situations where your Annual Allowance can be adjusted upwards or downwards:

1. When you’re carrying forward unused Annual Allowance from previous tax years to use in this tax year
2. When you’re a very high earn with an adjusted income of £260,000 or more
3. If you trigger the Money Purchase Annual Allowance (MPAA)

Carry forward: The carry forward rules allow you to use unused Annual Allowance from your previous three tax years, enabling you to make bigger contributions than the normal Annual Allowance this year. This could be particularly useful if you receive a bonus, an inheritance, or are in a better financial position now to make a bigger contribution.

Tapered Allowance: On the other hand, the rules around the Annual Allowance apply a taper that gradually reduces the amount high earners (with 'adjusted income' exceeding £260,000) can contribute to their pensions while receiving tax relief. This Tapered Allowance reduces the Annual Allowance by £1 for every £2 above the £260,000 adjusted income threshold, down to a minimum allowance of £10,000.  More information about the Money Purchase Annual Allowance is available further on in this article. 

How does tax relief on SIPP contributions work?

Most SIPPs use 'relief at source', where you contribute net of basic rate tax and your SIPP provider claims 20% tax relief from HMRC and adds it to your pension.

• For basic rate taxpayers: Your SIPP provider will automatically claim 20% tax back for you, which means an £800 contribution becomes £1,000 in your SIPP.
• For higher rate and additional rate taxpayers: You receive 20% tax relief automatically, just like basic rate taxpayers, but you then need to claim the additional 20% (higher rate) or 25% (additional rate) tax relief by submitting a self-assessment.

Can my employer contribute to my SIPP?

Yes, employers can contribute to your SIPP, although it's less common than workplace pension contributions. Employer SIPP contributions receive the same tax benefits, reducing the company's corporation tax while building your retirement savings.

For company directors, employer SIPP contributions can be particularly tax-efficient, simultaneously reducing corporation tax and building personal pension wealth.

Can I pay into a SIPP if I'm self-employed?

Yes, self-employed people can contribute to SIPPs and receive tax relief up to 100% of their taxable profit or the Annual Allowance, whichever is lower.

The flexibility to vary contributions makes SIPPs particularly suitable for self-employed people whose income fluctuates. You can contribute more during profitable periods and reduce or pause contributions during leaner times.

Can company directors pay into a SIPP through their business?

Yes, company directors can make employer contributions from their business to personal SIPPs, creating a tax-efficient method of extracting profit while building retirement wealth. Doing so offers several benefits for business owners:

• Corporation tax benefits: Employer SIPP contributions are allowable business expenses, which means they’ll reduce your corporation tax.
• No National Insurance: Unlike salary payments or bonuses, employer SIPP contributions attract no employer or employee National Insurance.

However, employer contributions must be commercially justified, "wholly and exclusively" for business purposes, and proportionate to the director's work. HMRC scrutinises excessive contributions, particularly for small companies with few employees.

What is the Money Purchase Annual Allowance (MPAA) and when does it apply?

The MPAA reduces your Annual Allowance to £10,000 once you start taking flexible pension benefits beyond just the 25% tax-free lump sum. This prevents people from withdrawing pension benefits while simultaneously contributing large amounts to receive additional tax relief.

Actions that trigger the MPAA:

• Taking income from flexi-access drawdown
• Taking an Uncrystallised Funds Pension Lump Sum (UFPLS), which is a way to take money purchase pension funds as a lump sum.

Actions that don't trigger the MPAA:

• Taking only your 25% tax-free lump sum
• Buying a lifetime annuity
• Taking small pot lump sums.

Once triggered, the MPAA applies to all Defined Contribution pension contributions for the rest of your life, so it’s an important consideration.

If you're still working and contributing to pensions, carefully plan when you start accessing benefits to avoid prematurely triggering the MPAA and losing valuable contribution capacity.

Is it worth starting a SIPP at 30?

Yes, it’s definitely worth starting a SIPP at 30, because theoretically that gives you 27 to 37 years of pension contributions and compound growth. Even modest contributions can grow substantially over such long periods, with investment returns compounding on both contributions and previous returns.

However, you will need some degree of investment knowledge if you choose a SIPP instead of another type of private pension, and it’s also only likely to be the right decision if you’re keen to have hands-on control of your pension’s investments.

Is it worth starting a SIPP at 40?

Yes, it’s still worth starting a SIPP at 40 - at that age you’re still likely to have between 17 and 27 years of contributions ahead of you, so provided you have some investment knowledge and are keen to manage your investments yourself a SIPP could be a good option.

It’s also worth remembering that your peak earning years are likely to be in your 40s or 50s, so you could make larger contributions at this age.

Is it worth starting a SIPP at 50?

Starting a SIPP at 50 can still provide valuable retirement savings growth, particularly for high earners or those with substantial income to contribute, although the shorter time horizon does reduce the benefit of compound growth.

However, at this age you might want to choose well-diversified investment funds for your SIPP, because as you’re nearing retirement age speculating on individual stocks and shares could be risky.

Is it worth starting a SIPP at 60?

Unless you’re planning to continue working beyond State Retirement Age, then starting a SIPP at 60 won’t give you many years to build up pension contributions and benefit from compound growth.

Of course, if you’re a particularly high earner it still might be worth considering, but it will be even more important to focus on lower risk, diversified investments at this age.

What can I invest in through a SIPP?

SIPPs offer a very wide range of investment options that are usually unavailable in workplace or standard personal pensions, although there might still be limitations in terms of the countries you can invest in or the alternative assets you can buy.

Can I invest in shares, funds, ETFs, and bonds?

Yes, shares, bonds, and investment funds form the core of the investment options available through most SIPPs:

Individual company shares: With a SIPP you can buy individual shares that are listed on leading stock exchanges like the London Stock Exchange, enabling you to build a pension portfolio that includes specific stocks that you’ve researched and selected yourself.

Investment funds: In addition to individual shares, you’ll usually have access to thousands of investment funds, including unit trusts, OEICs (Open-Ended Investment Companies), and investment trusts that cover a wide range of asset classes, geographic regions, and investment styles.

Exchange-Traded Funds (ETFs): These low-cost tracker funds trade on exchanges just like shares, offering simple, cheap exposure to entire markets or specific sectors.

Corporate and government bonds: Fixed-income securities can provide income and diversification, and include things like UK gilts, corporate bonds, and sometimes international bonds depending on your provider.

Can I hold commercial property in a SIPP?

Some SIPPs do allow direct commercial property investment, although this approach tends to be pretty complex, expensive, and unsuitable for most people.

For SIPPs that do allow it, commercial premises like offices, shops, warehouses, or light industrial units can be held in your portfolio, but residential property is prohibited even if currently used commercially.

In practice, it’s much more common for SIPP holders to achieve exposure to the commercial property market through property funds or Real Estate Investment Trusts (REITs) rather than through direct ownership.

Can I hold cash in a SIPP?

Yes, all SIPPs include cash facilities for holding money that’s awaiting investment, receiving dividends and interest, or maintaining liquidity for planned withdrawals.

However, holding a lot of cash inside your SIPP for extended periods of time defeats the purpose of the pension. Cash normally doesn’t keep up with inflation over extended periods, which means if you hold too much cash for too long the real value of your pension will gradually be eroded.

How do I choose investments inside a SIPP?

When you’re choosing investments you should take into account things like your age, your time to retirement, your risk tolerance, your investment knowledge, and your retirement goals, which will help you to create a portfolio that’s appropriate for your specific circumstances.

If you lack confidence in your investment decisions, you can seek professional financial advice to help you choose the right investment strategies. Just because it’s a “self-invested” personal pension doesn’t mean you can’t ask for advice.

How does the way you invest in a SIPP change according to age?

The amount of time you have left until you plan to retire will play a big role in how much investment risk you can afford to take on. Longer timeframes allow higher-risk, higher-return strategies as you have decades to recover from market downturns, while shorter timeframes will mean you’d be better focusing on a combination of well diversified investment funds and government bonds.

In your 30s: High equity exposure, long-term growth focus

Time is your greatest asset when you’re in your 30s, allowing you to test aggressive growth strategies that can recover from market volatility if things do move against you.

At this age, many SIPP holders focus on equity-heavy portfolios spanning UK and international markets, accepting short-term volatility for the potential for long-term growth.

In your 40s: A bend of growth and stability, starting to manage risk

Once you reach your 40s you might want to introduce a few more defensive investments into your SIPP, such as gilts or other government bonds, although you still have enough time until retirement at this age that you can likely still afford to hold a significant proportion of your SIPP in higher growth assets like stocks and shares.

This decade often sees peak earning potential, which means you might want to increase your pension contributions, and you could also consider consolidating old pensions for easier management.

In your 50s: Shift towards lower volatility and income planning

With retirement approaching, if you’re in your 50s you will probably want to begin protecting your accumulated wealth while maintaining a degree of growth potential. At this age many SIPP holders reduce the share of their portfolio that is invested in equities to around 50% or 60%, which reduces their risk exposure while still giving them some good potential upside if markets move in their favour.

In your 60s - Preservation of capital, liquidity for drawdown

In your 60s, your focus will shift towards preserving the capital you’ve already built up and ensuring sufficient liquidity for the withdrawals you’re planning to make in retirement. At this age, many SIPP holders put 70% or 80% of their portfolio into fixed income investments like government bonds, with the remaining 20% or 30% in equities in order to still have some potential for growth, albeit smaller.

How much does a SIPP cost to run?

SIPP costs can vary quite a bit from one provider to the next, and the types of investments you choose for your SIPP can also affect your overall costs.

While some SIPPs have fee structures that are as competitive as workplace pensions, because of the increased flexibility they offer and the broader range of investments you’ll have to choose from, SIPP holders often buy or sell investments more frequently than a workplace pension, which could result in higher overall costs once dealing fees are taken into account.

The most common fees you’ll be charged for your SIPP include:

• Platform fees: The platform fee is an ongoing fee you pay each year for the management of your SIPP, and depending on the provider this often ranges between 0.1% and 0.45% of your pension amount, although some providers will also have a cap on the amount to avoid higher pension pots paying too much, and one or two don’t charge any platform fees.
• Dealing charges: Every time you make a trade within your SIPP you’ll usually be charged a dealing fee or transaction fee. Unlike annual charges, which are usually a small percentage of your total pension amount, dealing charges are often fixed fees ranging between £1 and £12 per trade. These costs can accumulate quickly if you trade a lot, which is one of the reasons why ‘overtrading’ can undermine your pension pot.
• Fund charges: In addition to the annual charge you’ll pay for the management of your SIPP, if you invest in investment funds some of those funds will charge their own annual fees as well, known as ongoing charges figures (OCFs). Those charges often range between 0.1% and 1%, they can be higher, but that will be a percentage of the proportion of your SIPP that’s invested in that fund, rather than a proportion of your whole SIPP like the annual charge is.
• Set-up fees: Some SIPP providers charge a set-up fee when you first open your SIPP, although that’s increasingly uncommon in the UK.

What's the difference between a "full SIPP" and a "low-cost/platform SIPP"?

The two main differences between a full SIPP and a low-cost SIPP is the range of investment options, and the costs involved to have access to those options.

• Full SIPPs: As the name suggests, this type of SIPP offers the widest range of investment options, which could include commercial property, individual bonds, and specialist investments. This type of SIPP may charge higher fees to reflect their more extensive investment options and the administration complexity this brings.
• Low-cost SIPPs: Sometimes referred to as “SIPP lite”, this type of SIPP offers more investment options than standard personal pensions or stakeholder pensions, providing access to shares, investment funds, and ETFs, but in order to reduce costs they may exclude specialist investments like commercial property or structured products.

How do I compare SIPP providers?

When you’re comparing SIPP providers, the main factors you’re going to want to compare are:

1. Their range of investment options
2. Their fees
3. Their transfer process

• Fees: Don't focus solely on headline platform charges. Calculate total costs including annual platform fees, likely dealing charges based on your trading frequency, and typical fund charges for investments you might want to hold.
• Range of investments: This might sound obvious, but it’s important to ensure the provider actually offers the investments you want to hold, while not paying extra for access to investments you’ll never buy. For instance, if you primarily invest in funds and ETFs, then full SIPPs that give you a broader range of investment options might not be cost effective.
• Transfer process: If transferring existing pensions, understand transfer timelines, any transfer charges (from old providers), and whether investments can transfer in-specie or require selling.

Beyond those three main factors, it’s also a good idea to research the provider’s reputation and customer reviews, and you might also want to check their regulatory track record.

When can I access my SIPP?

Accessing your SIPP is based on the same rules as other Defined Contribution pensions, with flexibility over how you take benefits but restrictions on when access begins.

In practice, that means you’ll normally have to be 55 before you can access your SIPP, although that minimum age is rising to 57 from 6th April 2028.

If you’re younger than that, then you’ll usually only be able to access your SIPP earlier if you have serious health issues, usually meaning a life expectancy of under 12 months.

Of course, just because you can access your SIPP from the age of 55 doesn’t mean you have to, and many people do wait until they reach State Retirement Age before they do so.

What are my options for taking money out?

You can take up to 25% of your SIPP as tax-free cash, subject to the Lump Sum Allowance of £268,275. This can be taken all at once or phased over time as you access different portions of your SIPP.

There are a few options for how you can access your funds:

• Flexi-access drawdown: With drawdown, you keep your SIPP invested while taking income as needed. Your pot can continue growing, although this does have some risks because the value of your pension pot will fluctuate with market performance.
• Uncrystallised Funds Pension Lump Sum (UFPLS): With UFPLS, you take lump sums directly from your uncrystallised SIPP, with 25% of each withdrawal tax-free and 75% taxable. This approach provides flexibility but if you’re planning to continue contributing it might not be the best approach, because it triggers the MPAA, limiting future contributions to just £10,000 a year.
• Annuities: Another option is to purchase guaranteed income for life or a fixed term using some or all of your SIPP. Once purchased, your income is fixed (unless you choose escalating options), providing certainty but no flexibility or growth.

Many people combine approaches, perhaps using part of their SIPP for an annuity to cover essential expenses while keeping the remainder in drawdown for flexibility and potential growth.

How are SIPP withdrawals taxed?

The first 25% of your SIPP can be taken tax-free, either as an initial lump sum or spread across withdrawals.

The remaining 75% is taxed as income at your marginal tax rate (20%, 40%, or 45%) depending on your total income including other pensions, employment, and investment income.

Your SIPP provider operates PAYE, deducting income tax before paying you. However, emergency tax codes often apply to first withdrawals, deducting more tax than you owe. You can reclaim overpaid tax through HMRC forms.

No National Insurance applies to pension withdrawals from your SIPP, regardless of your age or employment status.

What is the sequence of returns risk and why does it matter?

“Sequence of returns risk” is the danger that poor investment performance early in retirement, combined with ongoing withdrawals, can permanently undermine the value of your pension.

For instance, if the financial markets fall by 20% in your first retirement year while you're withdrawing 4% for income, you've lost 24% of your pension pot rather than just 4%. Subsequent market recovery must overcome both the initial loss and ongoing withdrawals, making full recovery increasingly difficult.

There are a few strategies that could help to mitigate this risk:

• Reducing withdrawal rates during market downturns
• Maintaining 2 to 3 years of withdrawal amounts in cash or bonds to cover these reduced withdrawal rates
• Reducing the share of your SIPP that is held in equities when you’re approaching retirement
• Considering annuities for essential income, and keeping only discretionary spending in drawdown.

What happens to my SIPP if I die?

SIPP death benefits provide valuable flexibility for passing wealth to beneficiaries, with tax treatment currently depending on your age at death.

What happens to my SIPP if I die before 75?

At present, your beneficiaries can inherit your entire SIPP pot tax-free (within the lump sum and death benefit allowance of £1,073,100). They can take it as a lump sum, set up beneficiary drawdown to keep funds invested, or purchase annuities for guaranteed income.

This tax-free treatment makes SIPPs extremely tax-efficient for inheritance planning, particularly compared to other assets subject to 40% inheritance tax.

However, this treatment changes from April 2027, when pensions will become subject to inheritance tax while maintaining their current income tax treatment.

What happens if I die after 75

If you’re 75 or older when you die then your beneficiaries will pay income tax at their marginal rate on any money they withdraw from your SIPP, but for now they won’t face an inheritance tax bill.

However, the tax treatment is due to change in April 2027, when pensions will become subject to inheritance tax. This change to pension law will significantly reduce the inheritance tax advantages that currently make pensions attractive for estate planning.

Do SIPPs count towards inheritance tax?

At the moment, SIPPs are treated as being outside your estate for inheritance tax purposes, making them more tax-efficient for passing on wealth than many other types of assets.

However, from April 2027, unused pension funds will be included in your estate for inheritance tax calculation. This change will have a major effect on retirement planning and inheritance strategies, making professional advice increasingly important for anyone with substantial pension wealth.

How do I make sure my SIPP goes to the right person?

Complete your SIPP provider's 'expression of wish' or beneficiary nomination form, specifying who should receive your SIPP benefits. While providers aren't legally bound to follow your wishes, they usually do unless there are compelling reasons otherwise.

Keep nominations up to date, reviewing them after major life events like marriage, divorce, births, or deaths. Outdated nominations can result in your SIPP passing to unintended beneficiaries, potentially creating family disputes and financial hardship for those you intended to benefit.

Why are SIPPs popular with company directors?

SIPPs are popular with company directors because they offer a tax-efficient way to extract profit from the business while building retirement wealth.

When a company makes employer contributions to a director's SIPP, these contributions are treated as an allowable business expense, reducing corporation tax. Unlike salary or dividends, employer SIPP contributions also avoid National Insurance charges for both the company and the director, making them significantly more tax-efficient than other methods of extracting profit.

This combination of corporation tax relief, National Insurance savings, and personal pension tax relief can make SIPPs one of the most efficient ways for directors to take money from their business.

The investment flexibility that SIPPs offer can also be appealing to directors who want greater control over how their retirement savings are invested.

However, a director’s contributions to a SIPP must be "wholly and exclusively" for business purposes and proportionate to that director's role and remuneration. HMRC scrutinises excessive contributions, particularly in small companies with few employees, so it’s important not to contribute too much to the pension.

How do SIPPs compare with other tax-efficient wrappers for business owners (ISAs, company investments etc)?

Business owners have several tax-efficient options for building wealth, each with distinct advantages and limitations.

SIPPs vs ISAs: SIPPs provide upfront tax relief on contributions (20%, 40%, or 45% depending on your own tax rate), while ISAs don’t offer tax relief on contributions. However, ISA withdrawals are completely tax-free and can be accessed any time, whereas withdrawals from a SIPP (beyond the 25% tax-free lump sum) are taxed as income and normally can't be accessed before the age of 55. This is increasing to 57 from 2028. For business owners, SIPPs can be funded through tax-efficient employer contributions, while ISAs must be funded personally from after-tax income.

SIPPs vs company investments: Holding investments within your company gives you immediate access to funds and can avoid the age restrictions of pensions. However, company investments face corporation tax on gains and income, and extracting profits later usually incurs income tax or dividend tax. By contrast, SIPPs can grow tax-free and provide immediate tax relief on contributions.

In practice, many business owners use a strategic combination, maximising SIPP contributions for long-term retirement planning and corporation tax relief, building ISA savings for tax-free income before pension age, and maintaining some company investments for business flexibility and shorter-term needs.

The right balance depends on your age, retirement timeline, income needs, and business circumstances.

What are SIPP rules and regulations?

SIPPs are regulated by the Financial Conduct Authority (FCA) and must comply with pension legislation set out in the Finance Act 2004 and related regulations.

Key regulatory requirements include:

• Contribution limits: The Annual Allowance (currently £60,000) caps tax-relieved contributions across all your pensions, with a reduced Money Purchase Annual Allowance of £10,000 applying once you start taking flexible benefits.
• Age restrictions: You normally can't access your SIPP before age 55 (rising to 57 from April 2028), except in cases of serious ill health.
• Investment restrictions: While SIPPs offer broad investment choice, certain investments are prohibited or face tax penalties, including residential property, personally-used assets, and investments in connected parties that could constitute "unauthorised payments".
• Tax-free cash limits: You can take up to 25% tax-free, subject to the Lump Sum Allowance of £268,275.
• Provider authorisation: SIPP providers must be authorised by the FCA, ensuring they meet regulatory standards for capital adequacy, governance, and conduct.

Do SIPPs come with FSCS protection?

Yes, SIPPs are covered by the Financial Services Compensation Scheme (FSCS), which protects your pension if your SIPP provider goes bust.

The stocks and share, investment funds, and bonds that your SIPP is invested in should be ringfenced from your SIPP provider’s own funds, which means provided the SIPP was correctly managed those investments should be fully protected if the provider goes bust.

When it comes to cash within your SIPP, there would be a cap of £85,000 on the level of compensation you’d receive if your provider collapsed.

However, it's important to remember that the FSCS is only there to protect you if something goes wrong with the provider - any losses resulting from bad investment decisions or poor investment performance wouldn’t be covered.

Are SIPPs riskier than other pensions?

SIPPs aren't inherently riskier than other pensions, but they do place more of the responsibility on you when it comes to managing investment risk.

The key difference is control. With workplace pensions, professional fund managers typically make investment decisions using diversified default funds designed to manage risk automatically. With SIPPs, you make all investment decisions yourself, which can increase your risk exposure if you make poor decisions or fail to diversify your holdings.

How do I protect myself from pension scams?

Pension scams have become increasingly common, so it’s important to keep an eye out for the warning signs:

• Cold calls, texts, or emails about your pension (unsolicited communications about your pensions has been illegal since 2019)
• Unsolicited offers of a "free pension review" from a company that you haven't approached yourself
• Pressure to make quick decisions or transfer your pension quickly
• Promises of guaranteed high returns or access to your pension before the age of 55
• Opportunities to invest in exotic assets like overseas property, renewable energy bonds, or storage units
• Requests to transfer your pension to an overseas scheme.

There are several things you can do to protect yourself from potential pension scams, including:

1. Never engaging with unsolicited messages or calls about your pensions. Legitimate pension providers will never cold call or send you cold emails or texts.
2. Checking the FCA Register to verify any firm that you're considering is properly authorised.
3. Using the FCA’s warning list of unauthorised firms to check if a firm has been flagged for suspicious activity
4. Taking your time - scammers often create artificial urgency, but legitimate opportunities don't require rushed decisions.
5. Seeking advice from an FCA-authorised financial adviser before transferring your pension
6. Being especially cautious about "pension liberation" or "pension loans" - accessing your pension before the age of 55 (except in cases of serious ill health) usually results in a tax charge of 55% or more.

If you suspect a pension scam, you should report it to Action Fraud and the FCA.

What SIPP rules are changing?

The main upcoming changes to SIPP rules are an increase in the National Minimum Pension Age (NMPA), and the introduction of inheritance tax on inherited pensions.

National Minimum Pension Age (2028): The minimum age for accessing your SIPP is due to rise from 55 to 57 on 6th April 2028. This affects everyone except those with protected pension ages in specific schemes. If you're planning early retirement, factor this change into your timeline.

Inheritance tax on pensions (2027): From April 2027, unused pension funds will be included in your estate for inheritance tax purposes. Currently, SIPPs sit outside your estate for inheritance tax, but this change will bring them within the scope of inheritance tax for estates exceeding the nil-rate band. This is a major change that can affect estate planning.

Salary sacrifice and National Insurance (2029): From April 2029, only the first £2,000 per tax year of pension contributions made via salary sacrifice will be exempt from National Insurance. Contributions above this level through salary sacrifice will attract NICs, although employer pension contributions made outside salary sacrifice remain free of NICs.

Other pension rules could change it in the future, so it's a good idea to review your pension strategy periodically and consider seeking professional advice, particularly if you have substantial pension wealth or complex circumstances.

How do I decide if a SIPP is right for me?

Deciding whether a SIPP suits your own individual circumstances requires honest assessment of several key factors.

A SIPP might not be the right approach to retirement planning for you if you:

• Lack investment experience or confidence in making investment decisions yourself
• Prefer a hands-off approach where professionals manage your investments instead of you
• Don't have time to regularly review and adjust your portfolio
• Are happy with your workplace pension's investment options and prefer its simplicity
• Would struggle with the administrative responsibilities of managing a SIPP.

Can I transfer other pensions into a SIPP?

Yes, you can usually transfer other pensions into a SIPP, and many people do this to consolidate multiple pension pots for easier management and potentially lower overall fees.

You can usually transfer in:

• Old workplace pensions (provided they’re Defined Contribution schemes)
• Other personal pensions and stakeholder pensions
• Old SIPPs from other providers

In theory, some SIPP providers might also allow you to transfer in Defined Benefit pensions, but even if that is possible it’s unlikely to be a good decision. If you did that you’d be giving up the many benefits and guarantees a DB pension offers you (including a guaranteed income for life) and exchanging it for a DC pension that offers no guarantees.

How do I avoid common mistakes with SIPPs?

While SIPPs offer valuable flexibility, several common pitfalls can undermine your retirement savings if you're not careful. The most common mistakes include:

• Overtrading: Buying and selling investments too frequently can erode your pension quite dramatically, because of the dealing charges you would incur.
• Insufficient diversification: Putting too much of your SIPP into a single company, sector, or asset class is risky because it concentrates your risk. If that investment fails, you could severely damage your retirement prospects.
• Following hot tips or trends: Chasing last year's best-performing funds or following investment fads often means buying high and selling low. It’s better to focus on long-term fundamentals rather than short-term performance.
• Inappropriate risk for your age: Taking aggressive positions in individual shares when you're close to retirement amplifies the “sequence of returns risk”. As retirement approaches, you should gradually shift towards more defensive investments (such as bonds) in order to protect your accumulated wealth. The reverse can also be true if you’re many years from retirement, with more aggressive risk positions in individual shares offering greater wealth accumulation potential.
• Ignoring costs: While comparing providers’ annual charges, some people overlook other costs like dealing charges and fund charges. It’s important to take all fees into account in order to make an accurate comparison.
• Accessing your pension too early: Taking income from your SIPP while you’re still contributing triggers the Money Purchase Annual Allowance, which then permanently restricts future contributions to £10,000 a year. If you're still working and contributing, this can significantly reduce your ability to build pension wealth.
• Failing to rebalance your holdings: Over time, successful investments grow to dominate your portfolio, skewing your intended asset allocation. Regularly rebalance to maintain your target allocation and risk level.

The key to avoiding these types of mistakes is maintaining a disciplined, long-term approach, regularly educating yourself about investing, and knowing when to seek professional guidance rather than going it alone. As we’ve said before, just because your SIPP is “self-invested” doesn’t mean you can’t speak to an adviser about it.