What is a SIPP?

A self-invested personal pension or SIPP is a way to save for your retirement that gives you total control of where you can invest your money. It acts as a tax-efficient wrapper, this means it allows your investments to grow free from UK income and capital gains tax, while also benefiting from pension tax relief on contributions.

Tax rules can change and any benefits will be dependent on personal circumstances.

Unlike some traditional pensions, a SIPP lets you choose from a range of investments, like funds, shares, and exchange-traded funds (ETFs).

In this video, Joseph Ketteringham, Market Retirement Lead at Aviva, explains what a self-invested personal pension (SIPP) is and how it can help you save for retirement.

This video is part of The Pensions Manual series. Whether you're watching a full video or a single chapter, you can start wherever suits you. 

A SIPP works by allowing you to contribute into a tax-efficient wrapper and choose how those savings are invested. Contributions can be made by you, your employer, or a third party. Basic-rate tax relief will be added automatically by your provider at 20%. So, if you pay in £80, £100 will be added to your pension. If you’re a higher-rate or additional-rate taxpayer, then you may be able to claim extra tax relief through your self-assessment tax return.

Once your money is in your SIPP, you’re able to invest it as you’d like in a range of different assets, like funds, bonds, shares, or ETFs. The value of your pension will the rise and fall based on how your investments perform, so it’s important to choose investments that align with your personal financial goals. time frames and attitude to risk.

Some investors might regularly review their portfolio and rebalance their investments when needed. Rebalancing is when you adjust your holdings to maintain your desired level of risk or sector exposure, so your pension stays aligned with your retirement objectives as markets and your personal circumstances change. 

When it comes to how you can then take the money you’ll have different options, this can depend slightly on provider so it’s always best to check with who holds your pension for explicit details. But generally, you can expect:

• to be able to take your up to 25% tax free lump sum.
• to take flexi-access drawdown.
• to use the funds of your pension to purchase an annuity.
• to take lump-sums as and when you need them.
• to mix and match a few of these options. 

A SIPP can be a good option for people who want more choice over how their retirement savings are invested and are comfortable making their own investment decisions. SIPPs typically offer access to a wider range of investments than many personal pensions, giving investors greater flexibility over how they build and manage their pension savings.

Here’s a few examples of people who might benefit from a SIPP:

• Engaged investors who want to build and manage their own investment portfolio.
• Higher or additional rate taxpayers who may benefit from claiming extra tax relief on contributions.
• People who are self-employed who don’t have access to workplace pensions.
• People with multiple pensions who are looking to consolidate into one account making one account that’s easier to manage. 

However, it's worth noting that a SIPP isn't necessarily the right choice for everyone. If you prefer a more hands-off approach to investing, a workplace pension or simpler personal pension may be more appropriate. Workplace pensions can also include valuable employer contributions, which may not be available if you're paying into a SIPP instead. And if you're saving for goals before retirement or need flexible access to your money, an ISA or savings account could be a better fit, as pension savings generally can't be accessed until you reach the normal minimum pension age.

A SIPP is worth considering ultimately if you’d like more choice over how your pension is invested, or you want greater flexibility when planning for your retirement. Unlike other pensions that offer a limited range of funds, SIPPs can give you access to a wide selection of investments.

Another benefit is tax efficiency. Personal contributions to a SIPP are typically eligible for pension tax relief, which can help boost the amount you are investing in your future. Investments can also grow free from UK income tax and capital gains tax which can also support long-term growth.

One of the main benefits of a SIPP is its wide range of investment options available. Depending on your provider, you’ll typically be able to invest in individual shares, funds, bonds, exchange-traded funds (ETFs) or cash. This can give you the flexibility you need to build a portfolio that will match your retirement goals and attitude to risk.

The investments available can vary between SIPP providers, so it's important to check what's offered before opening an account. As with any investment, the value of your pension can go down as well as up, and returns are not guaranteed. Spreading your money across different asset types and keeping an eye on charges can help manage risk and support long-term investment growth.

Find out more about the different investment options available in a SIPP in our guide to investment types.

If you’re thinking about opening a SIPP, it’s important to understand some of the key rules that apply to your contributions, withdrawals and tax.

In most cases, you won’t be able to access the money held in your SIPP until you reach the minimum pension age, which is currently 55 but is due to rise to 57 on 6 April 2028. There are exceptions to this like ill health, where you’re not expected to live to retirement age.

SIPPs typically offer a wider range of investment options than many other pension arrangements. If you choose a SIPP, it's important to review your investments regularly and ensure they continue to align with your goals, time horizon and attitude to risk.

Tax rules for SIPPs

The tax rules for pensions as a whole are all the same, so the SIPP rules will also apply to any other pensions that you have. One of the main benefits of a SIPP is that your contributions are usually eligible for pension tax relief, while any investment growth is generally free from income tax and capital gains tax.

Most people can contribute up to 100% of their relevant UK earnings each tax year and receive tax relief, but this is subject to your annual allowance (£60,000 for the 2026/27 tax year). If you don’t use your full annual allowance in previous tax years you might be able to carry forward some of your unused allowance.

It’s also important to be aware of the Money Purchase Annual Allowance (MPAA). This can be triggered if you flexibly access your pension savings, like taking income through drawdown. Once it’s triggered, the amount you can contribute to your pensions while still receiving tax relief will be reduced. 

If you're a high earner, your annual allowance may be reduced by the Tapered Annual Allowance (TAA). This can apply if your income exceeds certain thresholds set by HMRC, reducing the amount you can contribute to pensions each tax year while still receiving tax relief. If you're affected, it's important to check your available allowance before making contributions.

When it comes to accessing your pension, you can normally take up to 25% of your pension pot tax-free (subject to prevailing rules and limits). Any further withdrawals are usually taxable as income and could affect the rate of tax you pay.

In many cases, you can transfer old pensions into a SIPP. This can be an option to consider if you have pension savings from previous employers or multiple personal pensions that you’d like to bring together in one place.

Pension arrangements that may be eligible for transfer include:

• defined contribution pensions from previous employers
• personal pensions
• other SIPPs

In some cases, you may be able to transfer a defined benefit pension into a SIPP. However, if it includes guarantees or protected benefits, these could be lost on transfer. You may also be required to take financial advice before a transfer can go ahead.

Before transferring a pension, it's important to understand any benefits you could be giving up. For example, transferring an active workplace pension could affect employer contributions. Taking the time to understand the benefits, risks and potential costs can help you decide whether a pension transfer is right for your circumstances and retirement goals.