A SIPP is a type of personal pension that lets you build your pension benefits in a tax-efficient way. You decide how and where your money’s invested from a wide range of available options.
It can sit alongside your existing workplace pension or, if you don’t have one, provide a flexible way to save for your retirement. While employers must give employees access to a workplace pension under automatic enrolment laws, it’s worth noting that not all SIPPs are suitable for this. And it’s a good idea to make the most of your workplace pension to get the full benefit of your employer’s contributions before taking out a separate SIPP.
If you already have several pensions, opening a SIPP could be a way to bring them all together in one place and save on admin.
Remember that the value of your pension can go down as well as up and you may get back less than you paid in.
Find out more about different kinds of pensions.
How SIPPs work
A SIPP is a personal pension that allows you to pick and choose from a range of investments. The upside of this is you get to decide where and how much of your retirement savings are invested. Find out more about investment options at Aviva.
What are the benefits of a SIPP?
A SIPP offers you control and flexibility. You have the final word over how much of your money goes into your pot in the first place and, because there’s usually a wider range of investment options, how and where it’s invested.
This means when the markets are riding high, you could get more return on your investments. Being able to choose higher-risk investments could bring bigger returns but, of course, also bring greater risk of loss.
As with other pensions, contributions to SIPPs are free from both Income Tax and Capital Gains Tax, as long as your total contributions don’t exceed the annual allowance of £60,000.
Plus, you’ll get 20% tax relief at a basic rate of tax on what you pay in from the government, up to a maximum of 100% of your earnings. So, if you put £80 in your SIPP, the government adds £20. Then when you’re ready to start your retirement, you can normally take 25% tax-free with the rest taxed at your Income Tax rate.
The lump sum allowance is how much you can be paid from all your pensions tax-free during your lifetime and in 2024/2025 it’s £268,275. The lump sum and death benefit allowance is the tax-free limit for payments during your lifetime and on death – it’s currently £1,073,100. UK Income Tax is payable on any benefits taken above these limits.
Lastly, when you die, the money from your SIPP isn’t normally included in your estate. This means you can pass on the money in your pension to the people you leave behind free of inheritance tax.
More about pension tax relief.
SIPP rules
Pretty much anyone in the UK under the age of 75 can take out a SIPP. You can even open them for your children to give them a head start. And some providers have SIPP options for non-UK residents too.
You may be able to carry over any unused annual allowance from the last three tax years but you’ll need to be prepared to leave your money untouched until you’re at least 55 (57 from 6 April 2028 unless you have a protected pension age).
Please note that tax rules are dependent on individual circumstances and are subject to change.
Can I transfer a pension into a SIPP?
Usually, yes you can. It depends on the type of pension or its features, though. Combining pensions can make managing them – and keeping an eye on how your retirement’s looking overall – much easier. But it’s worth taking some time to think about whether it’s the best option for you as transferring isn’t always right for everyone.
You’ll also need to check whether your new provider can accept your particular pension. Here you can find out more about transferring pensions.
Also, you’ll need to be comfortable managing your own investments and making your own investment decisions. As always, if you’re not sure, it’s a good idea to talk to a financial adviser.
