SIPP vs other personal pensions - what's the difference?

In this article, we look at how a Self-Invested Personal Pension (SIPP) compares with other personal pension types, so you can see the differences and decide what suits you best.

Your money in your pension is invested, this means the value of your investment can go down as well as up, and you may get back less than you've paid in.

Personal pensions are a tax-efficient way of saving for your retirement with various investment opportunities. Payments into them are eligible for tax relief (this doesn't apply to the amount you transfer from an existing pension as the tax relief has already been given). This means for every £80 you pay in, £100 is added to your pension through basic tax relief.

There is also the annual allowance, which restricts how much can be paid into pensions for your benefit, by anyone (you, your employer or anyone else contributing) without you paying a tax charge. Normally, this is £60,000 year, but it can be lower, if you've already taken certain sorts of taxable benefit, or if your income is above £200,000 a year.  This is set by the government, and applies to you personally, across all your pensions.

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

Note that any tax benefits may change in the future and will depend on your circumstances.

Investment options with SIPPs

SIPPs let you select your own investments from a much wider range than other types of pensions; this key feature can make SIPPs more attractive when people are deciding what kind of pension they want. Typically, you'll have the choice of investing in a range of assets that include shares, funds, investment trusts and possibly more. Using the Aviva SIPP, you'll have the choice as to how you invest, including:

1. Leave it to the experts
   The Aviva SIPP has choices if you would rather leave the investment decisions to the experts. This is the simplest way to save for your retirement.
   
   For example, our Universal Retirement Fund is actively managed by our investment team at Aviva Investors, and its goals are based on your age and chosen retirement age. It is managed in a way that aims to reduce your investment risk the closer you get to your chosen retirement date.
2. Get a bit more hands on
   If you're a slightly more experienced investor, you could use a SIPP to invest in ready-made funds. These allow you to choose your investment risk, but leave the investment decisions to the experts.
   
   The Aviva SIPP offers four ready-made funds, built and managed by leading fund managers from Aviva Investors. The different options mean you can really match them to your own goals and risk appetite. You can also choose from our Experts' Shortlist - a selection of funds that our experts at Aviva Investors think have the greatest chance of good income or capital growth over the long term.
3. Do it yourself
   If you're an experienced investor, you could opt to make all your own investment decisions.
   
   With our SIPP, you can browse and choose from a list of over 5,000 funds, including shares, bonds and other options, giving you more control over how you invest.

Drawdown options

SIPPs usually also come with the full range of retirement options. Meaning, if you want to take your money flexibly through drawdown or want to buy an annuity to give you a guaranteed pension for life, generally a SIPP has you covered. You’ll also be eligible for up to 25% of your pot tax-free when you hit 55 (or 57 from 2028). For example, in the Aviva SIPP, you'll be able to set up monthly income.

Pension consolidation

You may also be able to transfer other pensions into your SIPP. So, if you’ve accumulated pensions over the years from different employers, you may be able to consolidate them all into one place. In some cases you will be required to get advice before transferring and you'll need to pay a fee for this.

Personal pensions have very similar benefits to SIPPs. Basic rate tax relief is automatically added to your pension, up to your earnings limit. Higher and additional rate taxpayers can also claim extra tax relief via self-assessment.

Investment options in personal pensions

Personal pensions still give you access to a wide range of investment options, including the ability to choose from government‑designed Investment Pathways at the point of drawdown. 

Investment Pathways are intended to guide customers who may be unsure about how to invest their pension once they begin taking income. Each pathway is aligned to a specific retirement objective, and aims to provide an appropriate investment approach for that goal.

For example, someone planning to start withdrawing their pension in the near term might select a pathway with a lower‑risk strategy designed to help reduce the impact of market ups and downs.

Drawdown options

When you retire, personal pensions can offer different ways to access your money - but not every plan includes every option. Some pensions let you take a lump sum, buy an annuity to give you a guaranteed pension for life, set up regular monthly payments, or request varying amounts whenever you need them. Others may only allow lump sums or require you to make a request each time you want a withdrawal. Like a SIPP, you'll also be eligible for up to 25% of your pot tax-free when you hit 55 (or 57 from 2028).

To avoid surprises, check your pension policy or ask your provider what options you have. If flexibility matters to you, you might be able to transfer to a product that offers more drawdown choices. 

Pension consolidation

Many personal pensions also allow you to transfer into them, meaning you can consolidate all your pensions in one place. But it’s worth checking your specific policy to make sure this is the case. 

Pension charges

Each pension will have its own charging structure, but commonly they will have:

• Annual management charge: a charge taken by your provider for holding your money.
• Fund charge: a charge for the funds you’re invested in. It’s worth noting that if you’re in multiple different funds they may all have separate charges.

Sometimes the fees above can be taken in one fee. An Aviva SIPP will have both an annual management charge and a fund charge.

If you have a financial adviser:

• Advice fee: If you move to an Aviva SIPP, you would need to set-up and manage this without the input of an adviser. Any advice you receive you would need to pay for separately.