What is a SIPP and how is it different from a normal pension?

A SIPP (Self-Invested Personal Pension) is a pension where YOU choose the investments, rather than your employer or provider. It offers the same tax benefits but with access to thousands of funds, shares, ETFs, and other assets.

A SIPP is worth it if you want investment control and lower fees than workplace pensions. It's especially valuable for self-employed people, those wanting to consolidate old pensions, or investors comfortable choosing their own funds.

SIPP Guide 2026: Self-Invested Personal Pension Explained

A SIPP (Self-Invested Personal Pension) gives you full control over your pension investments with generous tax relief. Here’s everything you need to know.

SIPP vs Workplace Pension

Feature	SIPP	Workplace Pension
Investment choice	Thousands	10-30 typically
Tax relief	Same	Same
Employer contributions	No (usually)	Yes
Fees	Often lower	Varies
Best for	Self-directed investors	Passive savers

Tax Benefits

Contribution Tax Relief

Tax Rate	Your Contribution	Added by HMRC	Total in Pension
Basic (20%)	£80	£20	£100
Higher (40%)	£60*	£40	£100
Additional (45%)	£55*	£45	£100

*Higher/additional rate taxpayers claim extra via Self Assessment.

Tax Relief Example

£10,000 gross contribution:

Tax Rate	You Pay	Tax Relief	In Pension
Basic	£8,000	£2,000	£10,000
Higher	£6,000	£4,000	£10,000
Additional	£5,500	£4,500	£10,000

Contribution Limits

Limit	Amount
Annual Allowance	£60,000
Or 100% of earnings	If lower
Carry forward	3 tax years
Tapered (high earners)	Down to £10,000

Carry Forward Example

Tax Year	Unused Allowance
2023/24	£20,000
2024/25	£15,000
2025/26	£25,000
Available 2026/27	£60,000 + £60,000 = up to £120,000

What You Can Invest In

Allowed in SIPP

Investment	Allowed
UK shares	✓
International shares	✓
Index funds	✓
ETFs	✓
Investment trusts	✓
Bonds (corporate, government)	✓
REITs	✓
Cash	✓
Commercial property*	✓

NOT Allowed in SIPP

Investment	Allowed
Residential property	✗
Art and antiques	✗
Vintage cars	✗
Crypto (most SIPPs)	✗
Wine	✗

*Commercial property requires specialist SIPP.

Best SIPP Providers

For Index Fund Investors

Provider	Annual Fee	Fund Costs
Vanguard	0.15% (capped £375)	Own funds only
InvestEngine	0%	ETFs only

For DIY Investors

Provider	Annual Fee	Share Dealing
Interactive Investor	£12.99/month	£3.99/trade
AJ Bell	0.25% (capped)	£5/trade
Hargreaves Lansdown	0.45%	£11.95/trade
Fidelity	0.35%	£7.50/trade

Fee Comparison (£100,000 Portfolio)

Provider	Annual Cost
Vanguard	£150
InvestEngine	£0
Interactive Investor	£156
AJ Bell	£250
Hargreaves Lansdown	£450

Opening a SIPP

Requirements

Requirement	Details
UK resident	For tax purposes
Under 75	For contributions
ID verification	Standard checks

Process

Choose provider
Apply online (10-15 minutes)
Provide ID
Transfer existing pensions (optional)
Set up contributions
Choose investments

Consolidating Old Pensions

Why Consolidate

Benefit	Details
One dashboard	See everything
Lower fees	Often cheaper
Better investments	More choice
Easier tracking	Less admin

How to Transfer

Find old pensions (use Pension Tracing Service)
Check for exit fees
Check for benefits you’d lose
Request transfer forms
New provider handles transfer

Watch for: Final salary/defined benefit pensions require specialist advice (FCA rule if >£30,000).

SIPP for Self-Employed

Benefit	Details
Tax relief	Same as employed
Reduces taxable profit	Claim via Self Assessment
No employer to contribute	You fund it all
Flexibility	Contribute when you can

Example

Self-employed, £60,000 profit, contribute £10,000 to SIPP:

Item	Amount
Gross profit	£60,000
SIPP contribution	£8,000 (you pay)
Top-up from HMRC	£2,000
Taxable profit reduced to	£50,000
Tax saved	£2,000-£4,000

Accessing Your SIPP

When Can You Access

Period	Access Age
Currently	55
From 2028	57

How to Access

Option	How It Works
Tax-free lump sum	25% withdrawal (tax-free)
Drawdown	Keep invested, draw as needed
Annuity	Guaranteed income for life
UFPLS	Take lump sums (25% each tax-free)

Tax-Free Cash Example

SIPP Value	Tax-Free	Taxable
£100,000	£25,000	£75,000
£250,000	£62,500	£187,500
£500,000	£125,000	£375,000

Drawdown vs Annuity

Factor	Drawdown	Annuity
Flexibility	High	None
Guaranteed income	No	Yes
Investment risk	You bear it	Insurer bears it
Inheritance	Passes on	Usually dies with you
Best for	Good health, savvy	Want certainty

Death Benefits

Age at Death	Beneficiaries Receive
Before 75	Tax-free (lump sum or drawdown)
After 75	Taxed at their marginal rate

SIPPs are inheritance tax-free.

SIPP vs ISA

Factor	SIPP	ISA
Tax relief on contribution	Yes (20-45%)	No
Tax-free growth	Yes	Yes
Tax on withdrawal	Yes (75%)	No
Access	55/57+	Anytime
Annual limit	£60,000	£20,000

Rule: Pension for retirement (tax relief), ISA for flexibility.

Common SIPP Strategies

Salary Sacrifice

Reduce salary by pension contribution
Employer pays into SIPP
Save NI tax too (8%)

Excess Income

Monthly Income	Monthly Expenses	SIPP Contribution
£4,000	£3,000	£800 (pension)

Lump Sum Investment

Use carry forward to contribute up to £120,000+ in one year.

Bottom Line

Situation	SIPP Good Choice?
Want investment control	✓
Self-employed	✓
Consolidating pensions	✓
Maximising tax relief	✓
Want someone else to manage	✗
Getting employer match	Do workplace first

Key tips:

Get employer match first if available
Choose low-fee provider
Invest in low-cost index funds
Contribute regularly (pound cost averaging)
Don’t forget you can carry forward
Review annually but don’t tinker too much

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