Self-invested personal pensions (SIPPs) explained

A SIPP is a type of personal pension that puts all investment decisions in your hands. You can then make those decisions yourself or ask a regulated financial adviser, to make them for you. That gives you more flexibility with and control over your retirement planning.

Apart from its investment decision flexibility, a SIPP works just like standard personal pensions. You pay into it over many years before retiring and can then start taking money out once you reach 55 (or 57 after 2028). Hopefully your pension pot does well, but as with any investment there are no guarantees.

When you reach retirement age, you can leave your savings invested in your SIPP for as long as you want. When you’re ready, you can take your tax-free lump sum, put your money into a retirement income product or choose some combination of both.

Our Deciding how to use your pension pot tool can help you think about how that could work.

So what is a SIPP investment? Well, the exact details of what you can invest in depends on your provider and product. Your choices will usually include investment funds, stocks and shares and commercial (but not residential) property. As with any investment, their value will go up and down. Because of that, you may get back less than you put in.

To set up and pay into a SIPP, you need to be under 75 and a UK resident. You should also either be knowledgeable about making and managing investments or happy to hand that responsibility to a regulated financial adviser.

Once your SIPP is up and running, you’ll probably have a lot of contribution flexibility. You can usually easily change your regular payments, put in one-off lump sum payments or even take a break if you need to.

Finally, your SIPP doesn’t have to be your only pension. For example, you could pay into a SIPP and a workplace pension at the same time.

As with any pension, you can save up to 100% of your UK annual earnings into it tax-free, up to a cap of £60,000. If you earn more than £260,000 a year that tax-free amount goes down. And the lowest annual tax-free amount is £3,600, even if you earn less than that or nothing at all.  

You can also get tax relief on contributions of up to 100% of your annual earnings. The exact details of how that works can vary, depending on where you live and how you’re paid. For more details, take a look at our pension tax relief guide. To find out how to claim pension tax relief, check out the GOV.UK pension tax relief page.

And finally, don’t forget that all that can change once you start taking money out of your pension. You could move to the Money Purchase Annual Allowance (MPAA), which is only £10,000. Find out more at MoneyHelper’s MPAA page.

How are SIPPs different from personal pensions? Well, in many ways they’re very similar. The key personal pension vs SIPP difference is:

• With a SIPP, you get much more control over your investments.
• With a personal pension, your investments are managed for you.

If you want some control over how your pension is invested, but don't feel comfortable fully managing all of your investments, then our Personal Pension might be right for you.

It gives you a choice of five funds based on different risk appetites. Depending on which fund you choose, we'll invest your money in a way that reflects your preferred risk level.

If you're not sure what the best SIPP vs personal pension plan choice is for you, you should speak to a financial adviser. If you don’t already have one, you can find one at Unbiased.

When you die, any money or investments in your SIPP will usually pass to your beneficiaries. If you haven’t nominated any, your provider will fall back on their own rules to decide who your SIPP pot should go to. That’s why it’s so important to keep your beneficiaries’ details up to date.

Our What happens to my pension when I die? article will tell you more.

As next steps, we recommend:

• Reading around to make sure you really understand SIPP
• Shopping around, to see how SIPP products and deals vary between providers

Whether or not a SIPP is a good idea for you depends on your personal circumstances and savings goals. If you’re not sure, we’d recommend having a chat with a financial adviser.

If you do decide to go with one, make sure you understand any fees or charges involved. And you’ll either need to manage your own investments or have a regulated adviser manage them for you. If you don’t have one, find one at Unbiased.