• What is a SIPP?
• How does a SIPP work?
• Who are SIPPs most suitable for?
• How much does a SIPP cost?
• What are the advantages and disadvantages of a SIPP compared with other pensions?
• Can you have a SIPP and a workplace pension?
• Can employers contribute to a SIPP?
• What is the maximum allowance in a SIPP?
• How much does a SIPP pay out after retirement?
• Can you withdraw from a SIPP before you turn 55?
• What is the tax on a SIPP withdrawal?
• How do you access your pension at retirement?
• What are the differences between a SIPP and an ISA?

What is a SIPP?

A self-invested personal pension (SIPP) is a personal pension that you can manage yourself, which gives you more flexibility when it comes to what your money is invested in.

SIPPs have traditionally appealed to more financially-savvy investors with a relatively high net-worth, but they have grown in popularity over the past few years.

With a traditional personal pension, you hand over your retirement savings to a pension company to manage. But if you have a SIPP, you can have more control over where your money is invested.

A SIPP may be an attractive option for people who have built up several personal pensions in various places during their career and who now want to put them all together into a single pot.

But if you choose to manage the investments yourself, you’ll need to have the time to do so. You will also need to have the confidence to do it – it’ll be you rather than a fund manager who makes decisions on what assets to invest in, and what the allocation of your money should be.

Read more: Guide to  children’s pensions

How does a SIPP work?

One of the most attractive aspects of a SIPP is that you have a wide range of assets you can invest in.

Unlike with most personal pensions – which involve a fund manager looking after vast sums of money and making general decisions on behalf of all the fund’s investors – if you have a SIPP you can be more selective when it comes to deciding where to allocate your money.

You can invest in shares listed on any stock exchange, unit trusts, open-ended investment trusts, government funds, offshore funds, commercial property and so on.

Who are SIPPs most suitable for?

Anyone aged up to 75 can open a SIPP, but they may be more suited to people who are confident making their own investment decisions, and who are keen to access a wider range of possible investments.

An understanding of investing and financial markets may be necessary, although you can employ an adviser to help you.

How much does a SIPP cost?

It will vary between SIPP providers but, as a general rule, you’ll be charged an annual admin fee.

You might also be charged a set-up fee at the outset, and there could be further fees for carrying out trades within the SIPP.

It may be the case that the more investment options that are available to you within your SIPP, the more expensive the charges will be.

What are the advantages and disadvantages of a SIPP compared with other pensions?

The main advantages of a SIPP are control and choice.

You have a wider range of things you can invest your money in, and it can be you – rather than an investment manager – who decides how to allocate your money. This also means that you can consider your own environmental, social and governance (ESG) preferences and avoid investing in areas that unsustainable or unethical.

Depending on your knowledge, confidence and time, though, these same factors can be a disadvantage. If you are unsure of how investments work or you don’t have sufficient time to regularly monitor them and research your options, a SIPP might not be the option for you. A financial adviser can establish what type of pension is most suitable for you, based on your personal circumstances.

Read more: Guide to pension consolidation

Can you have a SIPP and a workplace pension?

Yes, you can have both.

If you have a workplace pension that you are still paying into, your employers make their own contributions into it. Any contributions you make to a SIPP will be separate from this.

Can employers contribute to a SIPP?

Yes, but not all employers will, as many prefer the simplicity of focusing on their existing workplace pension scheme and the admin that comes with that.

What is the maximum allowance in a SIPP?

There is no maximum amount that can be paid into a SIPP, but as with all pension schemes, there tax implications of contributing above certain amounts.

How much does a SIPP pay out after retirement?

A SIPP is a “wrapper” that contains the different investments you have spent your pension savings on so there are no guarantees on what you will receive in retirement.

How much you are able to draw will depend on a number of factors – the most important being how much you have paid into your SIPP and how your investments have performed over that time.

That is why it’s important if you have a SIPP that you have the time and expertise to be able to monitor your investments and be prepared to make changes if necessary.

Can you withdraw from a SIPP before you turn 55?

Not normally. As with other types of pensions, there are generous tax incentives for saving into a SIPP, but one of the conditions of this is that the money is tied up until you are 55 (or 57 from 2028).

What is the tax on a SIPP withdrawal?

A SIPP comes with the same tax benefits as other pension plans.
You get tax relief on your contributions (as long as you stay within the limits) and any growth will be free from tax.
When it comes to accessing your pension later in life, there will be the option to take part of the pension as a tax-free lump sum and the rest will be subject to income tax.

How do you access your pension at retirement?

The rules surrounding how you access your pension are the same as with other pensions.

You can take a tax-free lump sum – normally up to 25% of your pension pot – and then you can either take a regular income from your pension or withdraw lump sums flexibly as and when you need them. Getting financial advice about how to access your money can be very helpful.

What are the differences between a SIPP and an ISA?

A SIPP and an individual savings account (ISA) are similar in that any growth in them is tax-free, but there are some key differences.

The main one is that you get tax relief on the contributions you make into a SIPP, but with an ISA your contributions come from taxed income, and you can’t claim relief on them.

There is also a lower annual limit on what you can pay into an ISA, which is currently £20,000.

To discuss your personal pension options with an expert adviser, contact Alan Boswell Financial Planners on 01603 967967.

Please note, the value of an investment and any income from it can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future.

The value of tax benefits depends on your individual circumstances and the laws concerning these can change.