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A Self-Invested Personal Pension (SIPP) is a personal pension plan that gives you much more freedom of choice and control over how you invest your pension pot. 

Today it's extremely common for an individual to accumulate many pensions over their working lives. This makes keeping track of a pension pot a difficult task. Schemes set up through employers often offer limited access very little flexibility, and restricted investment choice, With traditional pensions, it isn't easy to find out what you have, where this is held, or what is happening with your money. 

To meet this gap in UK pension planning solutions, 25 years ago the UK pensions industry introduced the SIPP. Due to increased transparency, which exposed inefficiencies in traditional pension schemes, and a trend towards consumers taking a greater interest in their financial affairs, over the past 10 years SIPPs demand for SIPPs has been increasing dramatically. In addition, since the introduction of the pension freedoms legislation, coming into fruition in April 2015, SIPPs are now incredibly popular, as many older pension schemes have struggled to adopt the new rules. 

The majority of SIPPs can be accessed via an online platform that lets you switch in and out of investments, know exactly how much money's in your pension and any given time. This gives individuals much more freedom, however, this freedom comes with greater responsibility - you are fully in control of how and where your money is invested. For this reason, the majority of investors still appoint an independent financial advisor to help manage their SIPP investments. 

We have put together this guide with the objective of explaining what SIPPs are and how they work. We will cover the pros and cons in plain English to give you a good knowledge about SIPPs but you should always talk to a suitably qualified independent financial advisor to ensure the decisions you make meet your unique circumstances and objectives.

Please note that pension legislation and tax rules are subject to change. 

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What are the key benefits of a SIPP?

What are the benefits of SIPPs? 

Depending on your circumstances and objectives, SIPPs can be suitable for individuals wishing to retire in the UK or overseas. Because SIPPs give you a far wider choice of investments than most traditional UK pension schemes, a SIPP offers more control over where and how your pension pot is invested. Key benefits of a SIPP include:

Wider choice of investments

When you invest in a SIPP, you can use an investment platform to gain access to a huge choice of investments. These include:

  • Stocks and shares listed on a recognised exchange: You can deal in shares in the UK or overseas. The growth of these shares depends on company performance and market conditions. If the company does well and market conditions are bullish, your yields can be attractive.

  • Government gilts and corporate bonds: Corporate bonds are loans made to a company to help it grow. Gilts are loans made to the government. Both business and government repay your respective loans with interest at a pre-specified date.

  • Insurance bonds or funds: Offered by insurance companies, these take the form of standard whole life, or term life, insurance policies.

  • Exchange-traded funds (ETFs) and Exchange-traded commodities (ETCs):  ETFs and ETCs are baskets of securities offered on any asset class, index or sector. 

  • Deposit accounts with banks and similar financial institutions.

  • National Savings products: like income bonds, premium bonds, and index-linked savings certificates.

  • Commercial property: Buildings include care homes, shops, malls, garages, hotels, restaurants, offices, warehouses, and even prisons! 

  • Land: Agricultural land and land plots, like large parking lots.

  • Gold and silver: You can store gold and silver bullion in your SIPP.

  • Derivatives: SIPPs can accept certain derivatives, such as UK listed warrants and US-traded stock options. Few SIPPs can accept contracts for difference (CFDs) because they are highly speculative and investors stand a high risk of losing their entire investment.

  • Hedge funds: Hedge funds may sound risky but in essence, the term "Hedge" can mean the fund manager may follow a cautious or aggressive investment strategy, depending on the manager's mandate. 

Because SIPPs grant you more freedom over your choice of investments, you should always take care when constructing your portfolio. The economy, your circumstances, and your attitude to risk can all change. That is why it's a good idea to regularly monitor and review your investments to make sure they still meet your expectations and goals. If you are unsure, you should seek the advice of a suitably qualified financial advisor. You can even appoint a financial advisor or discretionary fund manager to make investment choices on your behalf or to recommend a suitable investment portfolio to you. 

Greater global focus

Most UK pensions, limit your investments to UK funds, denominated in pounds sterling. SIPPs offer a wider range of investments that are more globally focused, giving you access to invest in different currencies and markets outside of the UK. If you are retired or plan to retire outside of the UK, this will be an important factor to consider. Thousands of Brits were hit very hard by the drop in the value of the pound in the run-up to Brexit. People living abroad who were drawing a pension income in sterling saw the purchasing power of their income drop dramatically, almost overnight.

Consolidating existing pensions into a SIPP

If you have accumulated multiple pension schemes over the years, a SIPP makes it easy for you to consolidate them into one, easy-to-manage account. This will make it easier to keep track of your pension pot and helps to minimize administration. This is especially important if you are living overseas, as it's often difficult to keep multiple pension scheme providers updated with your contact information and expensive and inconvenient to make international calls when you need customer support. By consolidating pension schemes, it is also highly likely you can reduce your overall pension plan fees. This means you will have a higher return on your pension savings and can enjoy a better quality of life in your retirement. 

Tax benefits of a SIPP

Wherever you happen to live, your SIPP is based in the UK and qualifies for the same tax relief as any other UK pension scheme. This means that if you set up a new SIPP, or transfer your existing pensions into a SIPP whilst abroad and subsequently return to the UK for either a short time or permanently, you and your employer can make pension contributions that qualify for tax relief at your marginal rate. 

Tax benefits of a SIPP

SIPPs are UK pension schemes and as such, they must be authorised and regulated in the UK. The UK financial regulatory authority is the Financial Conduct Authority. If you invest in a UK-regulated financial institution you are protected by strict rules pertaining to transparency and disclosure of fees and charges, fair treatment, and adequate corporate and financial governance. SIPPs are categorized as retail investments, which means they are covered under the Financial Services Compensation Scheme. This will give you more confidence when compared with many international pension jurisdictions. 

How do I invest in a SIPP?

How do I invest into a SIPP? 

Pension contributions

A SIPP works in the same way as any other personal or stakeholder pension, in terms of tax benefits, contribution limits, and retirement options. In the UK, contributions to pensions qualify for tax relief, and you are taxed when you take an income from your pension. In some countries, it is the other way around. If you are a UK tax-payer, you can make contributions and receive tax relief on those contributions at your marginal rate. This relief is given in the form of contributions to your pension scheme from HMRC.


To give you an example, assuming you are a basic rate taxpayer (in 2021 your highest marginal rate is 20%). This means that for every 80p you contribute, the government will top you contribution up to £1. This is a fantastic benefit and gives a good incentive for people to save for their retirement. Unfortunately, if you are working overseas and are not a UK taxpayer, you cannot take this relief - other savings products will provide more benefits to expats wishing to save from their salary. 

Maximum annual contributions

Right now (2021-2022 tax year) the annual limit you can save into your pension (including contributions from your employer) is either 100% of your income or £40,000, whichever is lower. If you put more than this into your pension, you won’t receive tax relief on any amount over the contribution limit. However, your pension contribution limit depends on your income. If you earn less than £3,600, or you don’t earn anything at all, you’re still allowed to receive tax relief on pension contributions up to £3,600 gross. This means you save up to £2,880 and receive a 25% tax top-up from HMRC. 

Transferring your existing pension schemes

You should do your homework before transferring your pension into a SIPP. Not all SIPP schemes are equal and it is vital that you seek qualified pension transfer advice. In fact, if your pension is worth more than £30,000 the government stipulates that you MUST seek advice from a regulated pensions advisor, whether you want to or not!

You will need to request a transfer value from your existing pension scheme providers. If you have a defined benefit pension (final salary) you will need to ask for a cash-equivalent transfer value or CETV. You should also find out what benefits you stand to lose if you transfer out of your current pension scheme. These facts can help you establish whether a pension transfer into a SIPP is suitable for your individual circumstances. Most financial planning firms will help you obtain this information and many will do so on your behalf, often for free. Financial planning firms that specialise in offering pension advice will usually save you time and effort since they know exactly what to ask for and where to get it from. A simple authority from you will allow them to collect the relevant information and report it back to you, along with their recommendation, which you are under no obligation to accept. 

The process for carrying out a transfer can be complex and could take several months to complete. There will be a lot of paperwork to complete and it could take a lot longer if you first need to locate your pension, for example, if you set up a scheme with an old employer who is no longer in business.


In spite of this, if your pension is eligible for a transfer, your pension adviser will be able to help you trace your pensions, prepare all the necessary paperwork and manage the entire process, making life easy for you. 

Is a SIPP right for you? 

​Some SIPP providers offer a more restricted choice. Some SIPPs offer the choice of commercial property. They tend to be expensive. Low-cost SIPPs tend to exclude commercial property. Remember that investments should be held for the long term as they do fall as well as rise in value. This means you could get back less than you invested. As you approach retirement you should normally reduce exposure to volatile and riskier investments in preparation for securing your retirement income.


SIPPs aren’t for everyone. Some investors do not require a huge a large choice of investments, others may have adequate pension provision through their employer.

Flexibility and broad investment choice are particular attractions for those taking responsibility and control of their pension.


If starting a personal pension look at all the options. If investment choice and flexibility are not important to you, and your contributions are going to be low, then a stakeholder pension could be a cheaper and better option than a SIPP. If you want access to the best fund managers in the market a low‐cost SIPP may be a better choice. If you want to invest directly in commercial property or more exotic investments these are normally offered by the more expensive SIPPs. With a SIPP you should have the desire and confidence to take control and make investment decisions.


If you already have a personal or stakeholder pension you should in any case regularly review your arrangements, although few people do.


Many old personal pension arrangements have cripplingly high fees. They often suffer poor fund performance. However, before transferring, you should ensure that you will benefit from doing so, and check that you will not incur any excessive penalties or lose any guarantees or other benefits.


"Transferring to a SIPP is not difficult. People regularly change their car insurer or mortgage provider, few however take the trouble to re‐examine their pension”


Most pension plans are provided by insurance companies, which generally do not have the best record for investment performance. There are exceptions. Investment funds run by specialist companies have historically performed better, although past performance is not a guide to the future.


If you wish to escape from mediocre fund performance and take control of your pension arrangements, SIPPs offer access to the funds of specialist investment companies. And if charges are blighting your pension fund you could try a low-cost SIPP.


Certain SIPPs, such as those offering investment in commercial property, are expensive but low‐cost SIPPs can represent excellent value depending on the size of the fund and the investments chosen. Low-cost SIPPs may not include investments such as commercial property.


If you have any doubts about the suitability of a SIPP for your circumstances you should seek advice from a qualified advisor.

Speak to a qualified financial advisor about SIPPs

Is a SIPP right for me?

How is a SIPP taxed?

Tax relief on pension contributions

SIPPs have the same tax benefits as other personal pensions, including basic‐rate tax relief added by the government for personal contributions. This boosts your initial contributions. It works like this:

For every 80p you pay into your personal pension, the government adds 20p, boosting it to a gross contribution of £1. This basic‐rate tax relief is claimed by your SIPP provider and will be added to your pension automatically.

Almost every UK resident under 75 qualifies for this tax relief, even children and other non‐taxpayers.


Higher‐rate taxpayers enjoy even greater tax relief, as they can claim back up to a further 20p of every £1 gross contribution through their tax return or local tax office.


This means, for example, that a £10,000 contribution would ultimately cost you £8,000 if you are a basic rate taxpayer, and from as little as £6,000 if you are a higher-rate taxpayer. Those paying tax at the top rate of 50% can claim up to an extra 30p back per pound reducing the cost of a £10,000 contribution to as little as £5,000.


In addition to the up‐front tax relief, the investments within your SIPP grow free of UK capital gains and income taxes, although taxes already deducted from dividends cannot be reclaimed.

Employer contributions are paid gross, however, if an employer pension contribution ranks as a valid business expense, it can be offset against the taxable profits of the business. Any contribution an employer pays on your behalf should not count as a taxable benefit so should not be liable to tax or National Insurance.

Tax-free lump sum

You can normally take up to 25% of your fund as a tax‐free lump sum when you retire. The rest must be made available to provide a taxable income. If you die before taking retirement benefits, the fund can be made available to provide a taxable income for your dependants or can normally be paid as a lump sum, free of tax, to your nominated beneficiary.

Information in this guide is based on our understanding of current pensions and tax rules and regulations and these are subject to change. The exact relief you are entitled to will depend on your circumstances.

Lifetime allowance (LTA)

The Lifetime Allowance is the maximum value of your pensions before a 25% tax is imposed by UK tax authorities. At present this tax is levied on the excess of over £1,073,100 when benefits are crystallised. There are strategies available that can help reduce tax liability, including applying for individual or fixed protection. It should be noted that these options do not remain open forever. For those with funds approaching the LTA limit, it is important to consider your options as soon as possible.

How is a SIPP taxed?

How much can you invest into a SIPP? 

Nearly everyone under 75 in the UK is eligible to start a SIPP or transfer to another pension, even children.


To benefit from tax relief on contributions up to age 75, you need to be resident in the UK, or be a Crown Servant serving overseas, or their husband, wife, or civil partner. You can also benefit, even if you have been a non‐UK resident for up to 5 years if you were resident when you started the SIPP. If you meet these basic requirements you can usually pay at least £2,880 per tax year, which with basic‐rate tax‐relief is boosted to £3,600, whether you are a taxpayer or not. This means that children, retired people, and non‐working carers or parents can build up a pension pot.


Many people will be able to pay more. Unlimited contributions are allowed, but tax relief will only be given on the higher of £3,600 or an amount up to 100% of “relevant UK earnings” where this is a personal contribution. Generally, this is earnings from employment or self‐employment.


Each year there is an annual allowance on contributions; this tax year it is £50,000. Where the total contributions (personal, employer, and the value of benefits being built up in final salary schemes) exceed the annual allowance you will normally be taxed on the excess. It is also possible that you could be affected by this if combined contributions over two consecutive tax years exceed one year’s annual allowance.


There is a new facility to potentially carry forward any unused annual allowance from the three previous years.  


There is also a lifetime allowance. At present this tax is levied on the excess of over £1,073,100 when benefits are crystallised. There are strategies available that can help reduce tax liability, including applying for individual or fixed protection. It should be noted that these options do not remain open forever.


For those with funds approaching the LTA limit, it is important to consider your options as soon as possible. This applies to all your pension savings. If your total pension benefits are taken to exceed the lifetime allowance the excess could be hit with a lifetime allowance charge of up to 25%.

If you registered with HM Revenue & Customs before 6 April 2009 to protect your pension against the lifetime allowance then making any further pension contributions will normally lose any Enhanced Protection you hold.

How much can you invest into a SIPP?

How can you take money out of your SIPP? 

Any investor who has taken advantage of tax relief and investment growth to accumulate a pension fund will want to make the best retirement decision.


SIPP investors, like other personal pension savers, can take pension benefits after the age of 55. There is no upper age by which you have to take retirement benefits and therefore no requirement to take retirement benefits at all should you wish to keep your pension invested.


When you take benefits from a SIPP, you can normally take up to 25% of your fund as tax-free cash. The rest must be made available to provide a taxable income. You can either use the remaining fund to buy a lifetime annuity that pays a secure income for at least the rest of your life or can be made available to provide a taxable income directly from your SIPP.


This allows you to take your tax-free cash and keep the fund invested while drawing an income directly from your fund. With a drawdown plan, your fund is still invested and therefore will suffer the volatility of markets. As any income withdrawals and charges will be a drain on the funds, so income drawdown is usually suggested only for those with large funds (over £100,000) or other sources of income. It is certainly a riskier option than an annuity. Poor investment performance or large income withdrawals can quickly erode your fund’s value. In a worst-case scenario, this could completely deplete your fund leaving you reliant on other sources of income.


Remember, once in retirement you are unlikely to have the ability to earn money to make up for losses. One way to use income drawdown is to just take the natural yield of the underlying investment.


If you die while in drawdown the remaining money can be used to provide an income for your dependants or paid as a lump sum to your nominated beneficiary less a 55% tax charge.

How do I take benefits from a SIPP?

What is the process?

Below is a basic map of the process one needs to undergo to transfer their UK pension scheme to a SIPP. In many respects, the process is not very much different than transferring a pension to any other UK scheme. The times are just a guideline based on a typical SIPP application since many of the delays that occur arise due to the time it takes for a pension provider to pass on information to your financial advisor.

​First week

You make an initial enquiry to a financial advisor


Your advisor sends you a Letter of Authority to complete – so they can speak to your current pension provider on your behalf.


You email or fax the Letter of Authority to your financial advisor and send the original (sometimes just a scan or fax will suffice). Your financial advisor will forward this to your pension scheme provider, together with requests for any other specific information about your pension. Most financial advisors do not charge for this.



A Letter of Authority is an authorisation from you which allows your financial adviser to obtain information about your pension. This letter is not binding in any way and does not constitute an authority to make changes to or transfer the scheme.

2 to 4 weeks

You email or fax the Letter of Authority to your financial advisor and send the original (sometimes just a scan or fax will suffice). Your financial advisor will forward this to your pension scheme provider, together with requests for any other specific information about your pension. Most financial advisors do not charge for this.


Your existing pension provider will provide your financial advisor with a statement of your current benefits and a transfer valuation.


Warning: If your pension is a final salary scheme financial advisor should obtain a pension transfer analysis report from a qualified third party pensions technician. This report calculates the minimum amount of growth your transfer value will need to achieve each year to match your final salary benefits. This figure is called the “Critical Yield” and it is actually pretty critical. If a financial advisor attempts to persuade you to transfer your pension without showing you a critical yield calculation this should set alarm bells ringing immediately.

5 to 8 weeks

Your financial advisor helps you choose a SIPP product that best fits in with your current situation or objectives and you complete the application forms.


A discharge form is sent to your existing pension scheme provider, and an application form is sent to the chosen SIPP provider.


Your pension is then transferred into the SIPP and you will instruct your financial advisor to invest the funds as per your agreed mandate.

What is the process?

What happens to my SIPP if I die?

If you die before you have taken retirement benefits and before age 75, your SIPP will normally be passed to your nominated beneficiaries free of inheritance tax. If you are married/in a civil partnership any protected rights must be made available to provide your spouse or civil partner with a taxable income.


If you have not taken retirement benefits by age 75 and your SIPP is paid as a lump sum a 55% tax charge is payable on your death.

What happens to my SIPP if I die?

Am I better off with a SIPP or QROPS?

Both International SIPPs and QROPS have similar characteristics allowing the individual a more flexible approach to the management of their existing UK pensions. In terms of suitability, a QROPS is generally more appropriate for those with larger pension pots. A QROPS can also help protect against future tax liabilities for those nearing the UK Lifetime Allowance (currently £1,055,000). There is also the consideration of how the pension transfer would be taxed if you live outside Europe.

An Overseas Transfer Charge (OTC) in the form of a 25% tax on the transfer of UK pensions to a QROPS was introduced by the government in 2017. In general, residents of Europe/European Economic Area (EEA) countries are exempt from this charge on pension transfers.


Exceptions to the tax are granted under the following circumstances:

  • The QROPS is in the EEA and the Member is also resident in an EEA country.

  • The QROPS and Member are in the same country or territory.

  • The QROPS is an employer-sponsored occupational scheme, overseas public service pension scheme, or a pension scheme established by an international organisation.


An International SIPP is now the preferred option for anyone resident outside of the EEA (e.g. Australia) who wishes to transfer their UK pension overseas.

Am I better off with a SIPP or QROPS?

What is the next step?

Pensions are complex and you need to ensure that you are armed with the correct information, based on your personal circumstances and objectives, in order to make an informed choice when choosing, or transferring, any pension plan. It is recommended that you take professional financial advice to ensure that you have the correct plan to meet your needs and that you are on track to meet your retirement goals.

Connect with an expert through our network of UK-qualified Independent Financial Advisors. Through our introduction, you will be entitled to a free, no-obligation pension review. 

What is the next step?
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