What is a self-invested personal pension (SIPP)?

A self-invested personal pension (SIPP) is a type of pension that puts you in control of your retirement savings. You can pick and choose which pension company to use, how much money to pay in and where that money is invested.

You get the same tax perks as other pensions: free money in tax relief is added to your contributions, and any returns grow untouched by income tax and capital gains tax. In return, any money you put into a pension can’t be touched until you reach 55, rising to 57 from 2028.

What is a SIPP?

A SIPP is a personal pension that you open yourself, rather than a pension scheme offered by your employer. The ‘self-invested’ part means that you – or your financial adviser – have the freedom to choose your investments and manage them in future, rather than letting a pension company make all the decisions for you.

Who can get a SIPP?

Anyone in the UK aged between 18 and 75 can open a SIPP, and parents and guardians can open Junior SIPPs for kids under 18.

You don’t even have to pay tax in order to scoop up the tax relief. Non-taxpayers can pay up to £2,880 a year into a pension and see every £1 topped up with 25p in basic-rate tax relief.

What are the different types of SIPPs?

There are basically three types of SIPPs:

Let’s take a look at how they each work.

Full SIPPs

All-singing, all-dancing full Sipps are for savvy investors with large pension pots, who want the freedom to invest far beyond a few shares or funds. 

These bespoke SIPPs allow you to plough your retirement savings into weird and wonderful options, from commercial property and unlisted companies to actual gold bars ‒ as well as regular stocks and shares ‒ but often charge eye-popping fees for the privilege.

Providers include Barnet Waddingham, Rowanmoor and Dentons Pension Management.

Simple SIPPs

Simple SIPPs can still offer a wide choice of funds and shares, without going so far as allowing, for example, direct investments in commercial property.

The charges are usually cheaper than for full SIPPs, although they may still be complicated. 

One of your main choices will be between a SIPP that charges a percentage as an admin fee, which can be cheaper for smaller pots, or a flat fee. Some providers actually charge a combination of both.

Some of the biggest providers for these simpler SIPPs include investment platforms such as Hargreaves Lansdown, Interactive Investor, Fidelity, AJ Bell Youinvest, Charles Stanley Direct and Vanguard.

Ready-made SIPPs

Don’t fancy grappling with investment strategies? Try a SIPP which offers a limited range of suggested portfolios and then manages your money for you. 

The costs tend to be clear and reasonable rather than rock bottom. Think robo-advisers such as Nutmeg and evestor, the Moneybox app and online pension providers such as PensionBee and Penfold.

What do SIPPs invest in?

Like other pensions, SIPPs let you invest in the stock market, where your money has more chance to grow than if it was stuck in a savings account.

However, SIPPs can allow you to invest in a wider range of investments, selecting shares in individual companies, whether in this country or abroad, and funds such as investment trusts, unit trusts and open-ended investment companies (OEICs).

Full SIPPs offer the widest possible choice, including the chance to invest directly in commercial property such as office buildings, factories and hospitals.

Are SIPPs a good way to save for retirement?

Pensions in general are a great way to save for retirement, especially for higher rate taxpayers, due to the tax relief added onto your contributions.  

SIPPs in particular appeal to a few different types of pension savers. Most obviously, they are attractive to investors who are keen to manage where their pension pot is being invested, but they are also useful for the self-employed. If you work for yourself, you can’t take advantage of the auto-enrolment scheme, where your bosses are required to open a pension on your behalf and contribute towards it. With a SIPP, a self-employed person can start the ball rolling on their pension saving.

SIPPs can also work well for people who want to bring together old pensions into one place, while women who take time off paid work to raise children or for caring responsibilities might also consider a SIPP, if they can afford to continue some saving towards retirement. 

Just remember that if you are offered a pension through work, check if your employer will match any extra contributions you make. 

Jason Hollands from Bestinvest said: “Some employers might also be willing to pay into a SIPP, instead of their company pension scheme. If they won’t – and most don’t - it is better to stick with your current employer’s pension rather than forgo their contributions, as this is effectively ‘free money’ from your employer.”

It’s also worth comparing charges, in case your work pension costs less. 

How much does a SIPP cost?

Just as SIPPs come in all types of shapes and sizes, so do their costs.

If you go for a bespoke SIPP that allows exotic investments, you could easily be paying thousands of pounds a year in fees and charges, but if you go for a stripped down, basic platform then it may prove a super cheap way to save for your retirement.

If you prefer a slick website, decent customer service and access to extensive research and tools, you may need to pay somewhere in between.

Key costs to watch out for include annual platform fees, transactions costs and costs of the funds you use to invest. You should also consider the costs of withdrawing money from your pension, especially if you are getting close to retirement.

Remember, if your total costs are 2% a year, the investments in your pension will have to make at least 2% annually just to avoid losing money. Even if you manage to secure a return of 4%, you are still going to see half of it swallowed in charges.

Andrew Marker, head of retail pensions at Vanguard, explained: “While the power of compounding is your friend when it comes to returns, compounding costs will only gnaw away at your capital – particularly over a long period. 

“The less you pay in fees and charges, the better chance you’ll have of maximising your long-term returns and securing a comfortable retirement.”

Where can I find the best SIPP provider?

Ultimately the best SIPP provider for you will vary based on what you’re actually looking for. Do you want the broadest range of investment options, or are you happy to stick to regular stocks and shares? What sort of additional features are you looking for, which can help you make the right investment decisions? And how much are you willing to pay? All of these factors will have a bearing on the best SIPP provider for you.

Whatever you choose, do check your SIPP provider is authorised and regulated by the Financial Conduct Authority (FCA) to avoid pension scams. You can check the register of authorised firms on the FCA’s website.