TITLE: What Is a SIPP and Should You Open One? Self-Invested Personal Pensions Explained

CATEGORY: Pensions
DESCRIPTION: SIPPs offer more investment control and flexibility than standard workplace pensions — but they're not right for everyone. Here's what you need to know.

SECTION: What Is a SIPP?
A Self-Invested Personal Pension (SIPP) is a type of UK pension that gives you far greater control over how your pension savings are invested compared to a standard personal pension or workplace scheme. While a typical workplace pension invests your money in a limited range of pre-selected funds chosen by the employer or pension provider, a SIPP allows you to choose from a much wider range of investments — including thousands of funds, individual shares, ETFs, investment trusts, and in some cases property or commercial premises.

SECTION: How SIPPs Work
Like all pensions, SIPPs benefit from tax relief on contributions. If you contribute £800, the government adds basic rate tax relief of £200, making your pension contribution £1,000. Higher and additional rate taxpayers can claim extra relief through Self Assessment (20% or 25% extra respectively). All growth within a SIPP is free from income tax and capital gains tax.

You cannot normally access a SIPP until age 57 (rising from 55 to 57 in 2028). At that point, you can take 25% of the fund as a tax-free lump sum (up to a limit) and draw the rest as income, which is taxed as earned income.

SIPPs can be passed on to beneficiaries upon death — an advantage over annuities, which typically stop paying on death (or a reduced spouse's pension at most).

SECTION: Who Needs a SIPP? SIPPs are particularly well-suited to:

Self-employed workers: Who have no access to an employer pension scheme and need to set up their own pension. A SIPP is the most commonly used vehicle.

People who want more investment choice: If your workplace pension's default fund options feel too limited — for example, if you want to invest in specific sectors, regions, or individual companies — a SIPP allows this.

People consolidating multiple old workplace pensions: Rather than leaving pensions scattered across many previous employers, transferring them into a single SIPP can reduce costs, simplify management, and make better investment choices available.

High earners maximising tax relief: The contribution limit for annual pension contributions is £60,000 (the Annual Allowance for 2026/27), or 100% of your earnings if lower. For higher earners, SIPPs allow efficient use of this allowance.

SECTION: Types of SIPP
Standard SIPPs: Designed for retail investors, offering access to funds and ETFs through an online platform. Providers include Vanguard, Hargreaves Lansdown, AJ Bell, Interactive Investor, and Fidelity. These are straightforward, cost-effective, and appropriate for most people.

Full SIPPs: Allow investment in a wider range of assets including commercial property. These are more complex, typically more expensive, and suited to sophisticated investors or business owners wanting to buy commercial premises within their pension.

SECTION: SIPP Costs
SIPPs typically charge either:
- A percentage fee (e.g. 0.25–0.45% of the portfolio value per year), which becomes relatively more expensive as the pot grows.
- A flat fee (e.g. £100–£200 per year), which becomes relatively cheaper as the pot grows.

For smaller pension pots (under £50,000), a percentage-based platform is typically cheaper. For larger pots (over £100,000), flat-fee platforms often work out cheaper. Compare total costs including underlying fund charges, which are separate from the platform fee.

SECTION: SIPP vs Workplace Pension
For most employed people, maxing out workplace pension contributions (especially up to the employer match limit) should come before opening a separate SIPP, because employer matching is free money that a SIPP cannot replicate. Once the match is maximised, additional contributions can go into a SIPP if greater investment choice is desired — or simply into the workplace scheme if the investment options are adequate.

SECTION: Transfer Caution
You can transfer old workplace pensions into a SIPP, and this is often a good idea. However, be careful with:
- Defined Benefit pensions (guaranteed income for life): Transferring these away is rarely advisable and requires regulated financial advice for pots over £30,000.
- Protected benefits or enhanced tax-free cash: Some older pensions have benefits that are lost on transfer. Check carefully before moving.

SECTION: SimpleMoney Verdict
A SIPP is an excellent vehicle for self-employed people, those seeking more investment control, and those consolidating old pensions. For most employed people, it complements rather than replaces a workplace pension. Keep costs low, invest in broadly diversified low-cost funds, and contribute consistently — the SIPP structure does the rest.