SIPP basics: a personal pension you run yourself

A Self-Invested Personal Pension (SIPP) is a personal pension scheme that sits alongside your workplace pension or replaces it altogether if you are self-employed. Unlike a workplace scheme where your employer or a scheme manager chooses the investments, a SIPP gives you full control: you decide what to invest in, you manage the portfolio, and you take responsibility for performance. The government rewards this by offering tax relief on the money you contribute, making a SIPP a powerful tool for long-term wealth building.

How tax relief works with SIPPs

Tax relief is the government's incentive for you to save into a pension. When you contribute to a SIPP, the government adds money automatically to boost your pot. The most straightforward example: if you pay in £80, the government adds £20 (because you would have paid 20% income tax on that money anyway). Your provider automatically claims basic-rate tax relief (20%) from HM Revenue and Customs (HMRC) on a monthly or regular basis, so you do not need to do anything.

If you are a higher-rate or additional-rate taxpayer (paying 40% or 45% income tax), you are entitled to extra relief. However, you must claim this yourself through your Self-Assessment tax return to HMRC. For example, a higher-rate taxpayer who contributes £100 can claim back a total of £25 in tax relief across the two rates (basic and higher), but the provider only applies the first £20 automatically. You claim the remaining £5 on your tax return.

The annual allowance: limits on tax-relieved contributions

The annual allowance is the total amount across all your pensions (SIPP, workplace scheme, any other personal pensions) that qualifies for tax relief in each tax year. For the 2025/26 tax year, the standard annual allowance is £60,000. This means you can pay up to £60,000 into all your pensions combined and receive tax relief on the full amount, as long as you earn at least that much in relevant UK earnings.

If your earnings are lower, the relief is capped at 100% of your relevant earnings. If you contribute beyond the annual allowance, you will face an Annual Allowance Charge, which is a tax that claws back the relief you received on the excess. The charge is applied at your marginal rate of income tax and is reported through your Self-Assessment tax return.

Carry forward: using unused allowance from previous years

If you did not use your full annual allowance in earlier tax years, you can carry forward the unused amount. You can use unused allowance from the three previous tax years, provided you were a member of a registered pension scheme in each of those years (even if you made no contributions). This allows for flexibility if you have variable income—for instance, a good year may let you make a larger contribution using both the current year's allowance and carried-forward amounts.

High earners and the tapered allowance

If your adjusted income exceeds £260,000 in a tax year, your annual allowance is reduced. The allowance tapers down by £1 for every £2 of income above the threshold, until it reaches a floor of £10,000 at £360,000 adjusted income. This means high earners have a lower limit on tax-relieved contributions. It is important to understand how your income is calculated for this purpose; adjusted income includes employment income, profits from self-employment, and certain other sources.

Pension age: when you can access your money

A key feature of a SIPP—and all pensions—is that your money is locked away until you reach the normal minimum pension age. You cannot make a withdrawal without incurring severe tax penalties, except in narrow circumstances (ill health or a very small pension, for example).

Currently, the normal minimum pension age is 55. However, the government is raising this to 57 on 6 April 2028. Most people born after 3 November 2021 will not be able to access their pension before age 57. If you turned 55 before 6 April 2028, you may retain the right to access at 55, and some people have 'protected pension ages' that allow earlier access if they were scheme members before a certain date.

Tax benefits on investment growth and withdrawal

Unlike a standard investment account or Stocks and Shares ISA, the money in your SIPP grows free from income tax and capital gains tax. If you buy shares that pay dividends or make capital gains, neither is taxed inside the SIPP. This tax-free growth compounds over decades and is one of the main reasons pensions are so powerful for long-term saving.

When you finally access your SIPP at pension age, the first 25% can be taken as a tax-free lump sum (up to a new lifetime limit of £268,275 introduced in April 2024). The remaining 75% is subject to income tax at your marginal rate at the time of withdrawal. If you have multiple pensions, the tax-free entitlement is shared across them, so you need to plan carefully to make best use of your allowance.

Who should open a SIPP?

The self-employed

The self-employed have no employer to set up an auto-enrolment workplace pension. Unlike employed workers, who are automatically enrolled in a scheme and benefit from employer contributions, self-employed people must arrange their own pension. A SIPP is ideal because you can choose how much to contribute, when to contribute, and how to invest the money. You can make lump-sum contributions or regular payments, adjusted around your fluctuating income. You also retain full control of where your money is invested.

People with a workplace pension who want extra saving

If you are employed and already have a workplace pension, a SIPP can sit alongside it. This is useful if you want to save more than your employer scheme allows, invest in specific assets your workplace scheme does not offer, or simply manage a portion of your retirement savings yourself. Total contributions across all schemes still count toward the annual allowance.

Investors who want control

A SIPP lets you choose from a much wider range of investments than a standard personal pension: individual stocks, ETFs, funds, investment trusts, and even certain property assets. If you enjoy researching investment options and want to manage your own portfolio rather than rely on a fund manager, a SIPP offers that freedom.

Costs and fees

SIPPs are not free to run. You will encounter several layers of cost, and these vary significantly between providers and depending on how you invest.

Platform fees

Your SIPP provider charges a platform fee to hold your account and provide access to their investment platform. This is usually either a flat monthly fee (ranging from around £5.99 to £14.99 per month depending on your portfolio size) or a percentage of your assets under management (typically 0.1% to 0.45% annually). Some providers offer zero platform fees but earn revenue through other means, such as interest on uninvested cash or foreign exchange markups.

Trading and dealing costs

When you buy or sell investments within your SIPP, you may pay dealing fees. These might be a flat fee per transaction (ranging from £1.95 to £7.99 for shares or funds, depending on the provider), or you might get free dealing if you set up a regular monthly investment via Direct Debit. Some providers charge less if you trade actively; others penalise frequent trading. These costs add up, especially if you trade often.

Fund management fees

If you invest in managed funds, ETFs, or investment trusts within your SIPP, those funds charge their own ongoing fees (typically 0.05% to 1% per year). This is separate from your platform fee and is levied by the fund manager, not your SIPP provider. You should check fund charges carefully, as they compound over time.

Other charges

You may also encounter stamp duty on UK share purchases (0.5%), foreign exchange fees for international transactions, exit fees for transferring out of a SIPP, or drawdown fees when you finally access your pension. Always check a provider's charging schedule in full before opening an account.

Opening and managing a SIPP

Setting up a SIPP online takes just a few minutes. You will need to provide your National Insurance number and proof of identity. Most providers offer both ready-made (managed) portfolios and the option to build your own from a range of investments.

If you already have pensions from previous employers or other providers, you can transfer them into a SIPP to consolidate them in one place. This simplifies management and may reduce your overall costs. Transfers must be handled carefully to avoid tax penalties, and some providers charge a transfer-in fee, so always ask beforehand.

Once your SIPP is open, you manage it through an online dashboard. You can see your balance, monitor investment performance, review charges, and make trades (if you hold individual securities). Most providers offer mobile apps as well.

Key considerations for expats and newcomers

If you are a resident of the UK, you can open a SIPP regardless of your nationality or visa status. However, if you plan to leave the UK before reaching pension age, you should understand that your money will remain locked away until you reach the normal minimum pension age, even if you move abroad. UK tax rules apply to the growth inside your SIPP, but your country of residence may also tax the income when you eventually withdraw it. If you are a US citizen or resident, be especially aware that the US tax authorities may view your SIPP differently from the UK for tax purposes—consult a tax adviser familiar with your situation.

SIPPs are suitable for anyone—employed, self-employed, or a combination of both—who wants to take an active role in building their retirement savings. The flexibility to contribute when you choose, invest what you prefer, and manage it all yourself makes a SIPP appealing. But remember: with control comes responsibility. You alone decide how much to save, where to invest, and whether your choices align with your long-term goals.