How to choose a SIPP that’s right for you

Planning for your retirement is important, as making the right decisions in your younger years could make a big difference to your comfort in later life. 

When it comes to choosing a self-invested personal pension (SIPP), there’s plenty of options. Here’s how to find one that fits your needs.   

Remember that the value of a pension can go down as well as up, and you could get back less than you paid in.

SIPPs have some unique benefits which could make them a smart choice for your retirement savings.

SIPPs offer flexibility   

A SIPP gives you more control over your retirement savings than other pension types. 

You can choose from a wide range of investments, including stocks and shares, bonds, and property. This flexibility is ideal if you want to actively manage your pension, as making the right investment decisions could increase your returns.

Payments can be stopped or started at any time, which can be useful if you're self-employed or don't have a fixed income like a salary. Reducing or stopping your contributions will cut the size of your pension, so you should keep an eye on what it's likely to be worth when you retire. You should also be aware that if you stop your contributions at any point, charges will still be taken.

SIPPs are tax-efficient   

Like other personal pensions, SIPPs are tax efficient. This means that, when you put money into a SIPP, the government helps you by putting some of the tax you've paid on that money back into your pension. The amount you get depends on the amount you earn.

• For basic rate taxpayers, if you contribute £80 into your SIPP, the government adds £20, making your total contribution £100. This is because you get tax relief at 20%, which is the basic rate of tax.
• If you pay a higher rate of tax (40%), you still get £20 added to your £80 contribution automatically. However, you can claim an additional £20 through your tax return, so your £80 contribution could cost you only £60 after all tax reliefs are applied.
• If you pay the additional rate of tax (45%), the process starts the same: £20 is added to your £80 contribution. You can then claim further relief on your tax return based on the additional rate you pay.

Once your money is in a SIPP, any growth is tax-efficient.

When you choose to access your pension, anytime after the age of 55 (57 from 6 April 2028), you can usually withdraw up to 25% of your pension pot  as a lump sum completely tax-free. Any further withdrawals are taxed as income. The rate at which these withdrawals are taxed depends on your total income in the relevant tax year during your retirement. This might be less than during your working years, which could put you in a lower tax bracket. Or, withdrawing taxable income could put you in a higher tax bracket.

Tax benefits depend on your personal circumstances and tax laws. This information on tax is based on our understanding of current UK legislation and practice. Different tax rates will apply to taxpayers in Scotland. Tax rules my change in the future.

SIPPs and estate planning

As with any pension, SIPPs are a great way to plan what happens to any money left after you pass away.

You can choose who you would like to inherit your pension pot by nominating beneficiaries such as your children, spouse, or friends. Your nomination will be taken into account when benefits are paid out.

If you pass away before the age of 75, any money left in your SIPP can be passed on to your beneficiaries free of income tax. They can then choose how and when they withdraw these savings. They can take it as a lump sum, regular payments, or withdraw money as and when they need it, depending on their needs. If you pass away after the age of 75 any benefits paid will be taxed as income of the beneficiary.

If you die before 6 April 2027, death benefits will normally be free of inheritance tax. From that date, HMRC are changing the rules so that, if you die, death benefits payable from your pension to somebody other than your surviving spouse or civil partner will be included when calculating the value of your estate for the purposes of inheritance tax.

If you're unclear you should speak to a financial adviser. If you don't have a financial adviser, you can find one at MoneyHelper. There will be a charge for this advice.

When choosing a SIPP, it’s important to compare your options and understand the costs involved.

Some SIPP providers may choose to charge you some of the following fees:

• New SIPP account charges (when you first open your SIPP)  
• Account fees (annual or monthly charges for having an open SIPP account)
• Annual management fees (ongoing flat or percentage-based fees for managing the SIPP)
• Transactional fees (when you buy and sell investments)
• Transfer fees (paid if you move your SIPP to another provider)
• Exit fees (paid if you close your account)
• Investment fees (these will vary based on the funds chosen in your SIPP)
• Special investment fees (if your investments aren’t standard funds, equities or bonds, such as commercial property)

Different providers may have other fees that aren't listed above.

The amount you must pay for these fees depends on your provider and your SIPP. It’s important to understand your SIPP’s fees as they may impact your investment returns. Always read the fine print and ask about all possible charges.

You may be able to transfer the pensions you have to a new or existing SIPP. 

Whether you're transferring a single pension or consolidating a few old ones into it single SIPP, it could have some useful benefits - like giving you more control of your investments, making your pension easier to manage, and may even mean lower fees. 

But this may not be the right choice for everyone. You need to consider and compare features, charges, investment choices and any valuable benefits that could be lost in the process. This includes safeguarded benefits like guaranteed annuity rates. If you're unsure, you should speak to a financial adviser. 

We have more information on how to transfer your existing pensions to an Aviva SIPP.