Self-invested personal pensions (SIPPs) allow you to have a more hands-on approach in saving for retirement. This is because you’re responsible for choosing and managing your own investments - unlike other types of personal pensions which are often overseen by a provider.
SIPPs may appeal for the greater flexibility and control they afford the holder; indeed, with this pension product you’ll usually have access to a wider range of investment opportunities. Depending on your SIPP provider, this could include:
However, as is always the case when investing, it’s important to remember your capital is at risk and returns aren’t guaranteed.
If you’re under the age of 75, you can apply for a SIPP either directly with a provider or opt to have a financial adviser select a platform and investments on your behalf. While there is no universal minimum amount needed to open a SIPP, some providers may impose a lower threshold on lump sum or monthly contributions. Alternatively, if you have existing retirement pots you’re looking to consolidate, you can ask your new SIPP provider to arrange a pension transfer.
But, there are some rules to bear in mind:
The main difference between a SIPP and a workplace pension is who’s responsible for opening and managing the scheme. As the name suggests, a workplace pension is overseen by your employer; they (or a pension provider of their choice) generally decide how your money is invested. Some, however, may offer options that allow you to take more control.
Nevertheless, those wanting more say over how their retirement pot is invested may prefer to pay into a SIPP. You could even ask an employer to make their contributions into a personal pension (although they’re under no obligation to do so).
Yes, it’s possible to have both a SIPP and a workplace pension – in fact, there’s no limit on the number of pension pots you can pay into.
That being said, it’s important to keep in mind the various fees, charges and administration involved with managing multiple pensions, as well as the annual tax-free limit on pension contributions.
While SIPPs and ISAs both offer tax-efficient ways of saving for retirement, there are some key differences to be aware of:
SIPPs | ISAs | |
Function: |
SIPPs are specifically designed as a vessel to save for retirement and provide access to a wide range of investment opportunities. |
ISAs are a type of tax-efficient savings account with a broad range of uses. It’s also possible to invest using an ISA (see: Stocks and Shares ISAs).
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Tax benefits: |
Personal pension contributions equal to up to 100% of your annual salary are eligible for tax-relief (up to a maximum of £60,000). As a basic rate taxpayer, this means if you were to add £100 to a SIPP, your pension provider could claim 20% tax-relief from the Government, boosting your overall contribution to £125. What’s more, any returns on your investments will be exempt from Income and Capital Gains Tax (CGT).
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Any returns on funds held in an ISA are automatically exempt from Income and CGT, so there’s no need to worry about exceeding your Personal Savings Allowance (PSA).
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Max. contribution: |
There is no limit on how much you can pay into a SIPP, however, the annual allowance means only pension contributions of up to £60,000 each tax-year will receive tax-relief. While you can make contributions in excess of this amount, note they won’t receive tax-relief and you may be charged. |
The annual ISA allowance lets you deposit a total of up to £20,000 across any ISAs each tax-year. |
Accessibility: |
SIPPs can only be accessed upon turning 55 (or 57 from 2028). |
Money held in an ISA can typically be accessed at any time. Depending on the type of account or provider, a loss of interest penalty may apply for exceeding a set number of withdrawals within a year, or for removing cash before the end of an account term.
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SIPPs are regulated by the Financial Conduct Authority (FCA) which means providers must adhere to a set of high standards that aim to protect consumers.
Investments in a SIPP are ring-fenced so they can’t be used by a failing firm to pay creditors; however, if you were to lose money as a result of an FCA-regulated pension provider going bust, the Financial Services Compensation Scheme (FSCS) covers up to £85,000.
Crucially, this protection doesn’t extend to losses made on investments; that’s why it’s always important to remember your capital is at risk when investing.
Before getting a SIPP, you should consider whether you have a sound understanding of the UK financial markets, time to conduct research and the confidence to select investments. Whether a SIPP is right for you may also depend on whether you have sufficient funds to have a financial adviser oversee investments on your behalf.
If you’re not sure whether a SIPP is best suited to your needs and circumstances, explore other means of saving for retirement with our ultimate guide to pensions.
Small Self-Administered Schemes (SSAS) can also offer more flexibility when it comes to saving for retirement. These trust-based schemes are a type of workplace pension that afford greater control over, and a wider choice of, investments.
Although SIPPs and SSAS pensions share some similarities, these products were designed with different purposes in mind.
SIPPs are open to any individual and are often independent of employment. In contrast, a SSAS pension is self-managed by a group of employees (usually senior managers) and can additionally benefit their company while offering an income in retirement.
Most commonly used by small or family-run businesses, such schemes see a small number of trustees take responsibility for selecting and managing their pension investments. Trustees are also often members of the scheme; while they tend to be company directors or senior executives, membership can sometimes be extended to other employees and family members.
Depending on the scheme, members either hold an individual retirement pot or will receive a percentage of the total funds accumulated when cashing in their pension.
SSAS pensions follow many of the same rules that apply to other types of pensions. For instance, they are also subject to the annual tax-free allowance, by which basic-rate taxpayers can get tax-relief on eligible contributions. Similarly, you can take 25% of your SSAS tax-free upon reaching the NMPA.
However, there are other rules that are unique to these schemes:
Like SIPPs, a SSAS may appeal to those wanting more involvement in managing their pension, or who are looking for a greater range of investment opportunities.
However, it’s important to remember being a member of a SSAS involves taking legal responsibility for meeting requirements laid out by HMRC and The Pensions Regulator. Those less confident in their ability to select investments or properly follow regulations may want to consider alternative options.
Yes, you can pay into someone else’s SIPP so long as they themselves set up the pension pot (or if it was opened by the parent of a child under the age of 18). This is known as making a third-party contribution.
Any third-party contributions are still eligible for tax-relief and will count towards the recipient’s annual allowance.
Yes, it’s possible to transfer to and from a SSAS.
Whether you think a SSAS is better suited to your needs, or you want to consolidate multiple pots with this type of pension, you simply need to contact your existing provider/s and request they organise a transfer.
Meanwhile, to transfer the value of an existing SSAS to another pension, this involves asking your new provider to arrange the transfer process. Bear in mind that this can take some time, depending on the assets held in the scheme.
Related Guide: Is transferring my pension a good idea?
If you were to die before the age of 75, your nominated beneficiaries could take a tax-free lump sum from your SIPP or SSAS pension, providing it doesn’t exceed the Individual Lump Sum and Death Benefit Allowance (LSDBA). Alternatively, they could leave the money invested and take a regular income, also without facing tax.
After reaching 75, your beneficiaries are required to pay tax according to their marginal income tax bracket when taking money from your SIPP or SSAS pension.
Related Guide: What happens to your pension when you die?