What's the Self-Invested Personal Pension?

Self-Invested Personal Pension: Here's What You Need to Know

If you have no idea of the best pension plan to invest in, here’s a detailed guide into one of the most incredible pension plans1 – the Self Invested Personal Pensions Plan.
What’s the Self-Invested Personal Pension

SIPPS Explained

A Self-Invested Personal Pension (SIPP) is a form of defined contributions pension scheme that enables you to select your own investments. If you, however, don’t want to worry about the management of the assets, you can appoint a fund manager who’ll make the challenging investment decisions for you.

Here’s an interesting fact:

A SIPP is one of the most flexible and portable pension schemes since it allows you to keep contributing to the fund even if you change your workstation or quit your job. Your boss can also opt to contribute to your SIPP.

How Self-Invested Personal Pensions Work

How Self-Invested Personal Pensions Work

If you don’t mind managing your pension investments (or allocating that role to a fund manager), you have the right to set up the SIPP yourself. It’s a straightforward process since all you have to do is to compare various providers’ offering online.

When you’ve opened a  SIPP, you have to choose what you want to invest in before you make any contributions – it can be made a one-off or monthly payment. If you, plan on moving one or more personal pensions into your SIPP account, you have to check if you’ll be subjected to transfer fees by the pension provider.

  • When the SIPP is up and running, it acts like a regular pension scheme:
  • The government offers you tax relief on your pension contributions
  • You can request your boss to make additional contributions, but they’re not required to
  • The pension scheme’s value will rise or fall depending on how your investments perform


Since SIPPs need a more hands-on approach than the basic pension plan, you need to be keen on its performance and make ongoing investment decisions. And thanks to technology, today you can easily do this online.

Why Choose A SIPP?

SIPP schemes can be an ideal option if you are looking to combine your pension funds into a single pot and then actively manage your cash yourself or select a fund manager to help make the tough investment decisions for you. Other pension plans are mostly let in the hand of the pension provider.

What does this mean?

It means that Self-Invested Personal Pensions come with a certain level of accountability and need pensioners to have some comprehension of investing and monitor their investments. You can usually choose to contribute low amounts into your SIPP (monthly), but higher regular contributions offer you access to better investment choices.

The Benefits of SIPP You Need to Know

The Benefits of SIPP You Need to Know

A SIPP operates like a basic pension scheme, but it offers you greater flexibility and control over your investments.  There are various perks to having a SIPP and some of these include, but aren’t limited to:

  • Flexibility over time and the amount you invest in your pension plan
  • Overall control over the investment options
  • You can quickly get returns based on your level of investment risk
  • Tax-efficient – the state will match your pension savings with tax relief
  • Self-Invested Personal Pensions are a versatile investment option since they can hold a series of defined asset funds
  • Your pension savings will grow together with your underlying investment options, and you can opt to keep contributing to the pension scheme until you’re 75 years
  • SIPPs offer you significant tax benefits on your savings. You’re guaranteed a 20% tax top-up, and if you’re in the higher rate taxpayers bracket, you can enjoy a further 25% deductible tax relief on your contributions
  • You can withdraw up to 25% tax-free, and there are flexible investment options you choose for the remaining 75%. You can choose to:
  • Purchase an annuity1
  • Withdraw your cash through income drawdowns
  • Withdraw the capital through a series of lump-sum amount
  • You can also leave it in the pension scheme to continue increasing

SIPP Drawbacks You Need to Be Aware of

Like every other financial plan, SIPP has its own plate of disadvantages. These include:

  • You face the risk of paying extra fees for the SIPP’s wrapper
  • There are limits on the amount of tax relief you receive from your SIPP savings
  • Capital is locked until you’re 55 years or older
  • You pay taxes on the lump sum withdrawals above 25% of your SIPP2
  • Since you make your own investment decisions, if you have no idea what you’re doing, you could end up making some poor investment choices

SIPP Charges

If you have a significant pension pot, you can choose a ‘full SIPP’ that offers an array of investment options. However, the full SIPP will attract a high setup fee, yearly management costs, and hefty trading expenses.

The more affordable and accessible SIPP plans are often referred to as ‘low cost or lite’ pensions. These pension schemes tend to attract lower fees for purchasing and selling shares and low admin costs. Most of them charge you minimum set-up charges or none at all.

Here’s the thing:

There are various SIPPs accessible, and they all have different fee structures. Therefore, you must check and compare them carefully. You should take a look at the exit fees when you want to transfer your pension and the amount you’ll have to pay when you wish to withdraw some cash from your pension fund.

Suppose you’re not sure about the pension plan. In that case, you can always seek professional advice from an independent financial advisor who’ll walk you through the whole process and benefits of the scheme. 

How to Choose Investments For Your SIPP

How to Choose Investments For Your SIPP

Many SIPPs provide you with a limited but extensive array of investment options, and you can choose these options using the portal provided by your pension provider.  The types of investments you can select will heavily depend on:

  • Your goals – how much do you want to get upon retirement?
  • Your current situations – how much cash can you afford to pay into your pension pot?
  • Risk tolerance – are you willing to make the tough calls on your investments?
  • Investment experience – how good are you at making the investment decisions?
  • The market awareness – do you know which investments will offer you the best returns in the current financial climate?

If you’re not sure about the investment decisions, you can choose a person with more experience and market knowledge to help you make those tough calls. It’s never embarrassing to ask for help when you need it.

What Can You Invest Money in?

One of the main benefits of investing in a SIPP is that they enable you to invest in a wide array of choices. Nevertheless, every SIPP provider offers different asset options so you might want to check with them and see which one suits you best. Some of these investment options include, but aren’t limited to:

  • Cash
  • Stocks
  • Open-ended investment companies (OEICs)
  • Company shares
  • Unit trusts
  • Investment trusts
  • Real estate investment trusts (REITs)
  • Commercial estates
  • Traded endowment policies
  • Government securities or bonds
  • Exchange-traded funds (ETFs)
  • Corporate bonds

You won’t be able to invest in the following options:

  • Loans
  • Commodities
  • But-to-let estates
  • Intellectual property
  • Directly-owned residential estates
  • Luxury assets lie art or jewellery


It’s important to note that residential estates can’t be held directly into your SIPP with the tax benefits that usually come with pension investments. However, subject to some limitations, including those on personal use, residential estates can be held in your SIP plan via specific forms of collective assets like real estate, investment trusts, without losing the tax benefits.

Do It Yourself vs Ready-Made

Do It Yourself vs Ready-Made

Some pension providers offer SIPPs that already have investments, hence the term’ ready-made.’ These will enable you to select from a small range of ready-made SIPPs to match your investment goals. When you’ve chosen a ready-made SIPP, your pension provider will continue to oversee the management of the funs for you. Some of the benefits of choosing a read-made SIPP include:

  • It’s easy to set up
  • It doesn’t require any hand-on engagements
  • The experts manage the pension fund

Nonetheless, like with other financial plans, there are drawbacks associated with ready-made SIPPs. These include:

  • You won’t be able to select individual investments
  • You can’t change your investments based on the market
  • You might have to pay high annual management fees
  • You can contribute a higher minimum investment amount

Group Self-Invested Personal Pensions (GSIPPs)

A GSIPP is a group of Self-Invested Personal Pension with the same pension provider and is unusually created by employers on behalf of their employees. It allows straightforward set-ups and administration as compared to every staff member setting up their own SIPP scheme.

GSIPPs offer default investment options, but you do have the right to choose from other available investment options with the pension provider. Some extra benefits come with GSSIPs like offering greater buying power for asset funds like commercial estates. Nonetheless, GSIPPs work in the same fashion as regular pension plans.

How and When Can You Access Money in A SIPP?

You’re allowed to access your SIPP funds for 55 years, regardless of who your pension provider is. Nevertheless, you can delay releasing the cash if you prefer (that will guarantee you more money in the future).

  • The value of the amount you receive from your SIPP is based on:
  • The number of pension contributions you’ve made
  • How long you’ve been making these contributions
  • The investments’ performance
  • Amount of fees charged on the pension scheme

When you’re 55 and decide to withdraw the cash from your SIPP, you have several options to choose from, and they’re similar to conventional pension plans. Therefore, you can:

  • Withdraw the capital as a lump sum
  • Withdraw a smaller lump sum then leave the remaining amount for later use
  • Purchase an annuity
  • Withdraw in a series of income drawdowns
  • Leave the cash in the pension fund for later access when you need it

You should also keep in mind that 25% of the amount you withdraw will be untaxed, but you; ‘ll have to pay tax on the remaining amount. That will contribute to your annual income, and it could place you in a higher income tax band.

Tax Benefits of SIPPS

Imagine having an account where for every €100 you put in you get an extra €20 to make it worth €120. You’d open that account in a heartbeat, right? Well, with the SIPP, you can have this and more. Thanks to tax relief, for every €100 you contribute to your pension fund, you receive a healthy 25% boost, thus making your retirement saving plan much more manageable.

You see:

Just like the conventional pension plans, investment in a SIPP will grow free from income and capital gains tax.  You also receive tax relief on your contributions- therefore every dime you invest in the SIPP will be topped by 20% from the government. Those in the higher rate or additional rate taxpayers’ bracket can claim an extra 40% and 45% respectively.

Paying into Your SIPP

When it comes to contributing cash to your SIPP, the state will apply tax relief on your pension contributions. The amount you’ll get will be based on your income tax bracket (Scotland has its rates).  In England, however, the amount you receive will be as follows:

  • Those in the standard rate taxpayers bracket receive 20% tax relief
  • Higher rate taxpayers receive 40% tax relief (one can claim via the self-assessment tax returns form)
  • Additional rate taxpayers receive 45% tax relief

There’s a limit to the amount you can contribute to your SIPP scheme. It is referred to as the annual allowance, and it enables you to contribute up to €40,000 each year (or 100% of your wages, depending on which amount is the lowest of the two). The rules are, however, slightly varying for those who earn an income less than €3,600 or more than €240,000.  Like other pension schemes, there’s also no tax imposed on the growth in value of the pension investments.

If you’d like to see how much you’ll receive, you can use the SIPP calculator to see an estimate of the amount you’ll receive upon retirement.

SIPP Withdrawal Rules

As per the SIPP pension rules, you can draw 25% of your SIPP tax-free. The remaining 75% will be considered as your annual income and is taxed based on your income tax bracket. Therefore, if, for instance, your yearly income place you in the higher rate tax bracket, you’ll have to pay 40% on income above €50,000.  

Got Questions? Check These First

What Are Self-Invested Personal Pensions?

Is A SIPP A Good Idea?

What's the Difference Between A SIPP and An ISA?

Can You Manage A SIPP by Yourself?

In conclusion

And that was only the beginning.

As you can see, there are many benefits to a self-invested personal pension. You may want to start taking advantage of this type of retirement plan sooner rather than later to maximize your savings and potential earnings on the investments that you make.


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