What Is a SIPP? Everything You Need to Know About Self-Invested Personal Pensions

When I first heard about SIPPs, I had no idea how different they were from a standard workplace pension. Most people have a workplace pension set up by their employer, and they never think much about it. But a SIPP gives you a level of control and flexibility that a standard scheme simply can't match. So I decided to break it all down in plain English.

What Is a SIPP?

A SIPP, or Self-Invested Personal Pension, is a type of personal pension that allows you to choose and manage your own investments. Unlike a standard workplace pension where your employer or the pension provider chooses the funds, a SIPP lets you invest in a much wider range of assets including individual shares, investment trusts, ETFs, bonds, and commercial property. You can read the official overview on the MoneyHelper SIPP guide.

The key thing to understand is that a SIPP is still a pension. It has all the same tax advantages as any other pension: you get tax relief on contributions, your investments grow free of capital gains and income tax, and you can take 25% as a tax-free lump sum when you retire.

Why Would You Choose a SIPP?

The main reason people choose a SIPP is investment choice. With a typical workplace pension, you might have access to 20-30 funds. With a SIPP, you could have access to thousands of funds, plus individual shares, ETFs, investment trusts, and more.

When I first opened my SIPP, what struck me was the sheer range of options. I could build a portfolio exactly the way I wanted, using low-cost index trackers from Vanguard, iShares, or HSBC, rather than being limited to whatever funds my employer's pension provider offered.

The other major advantage is consolidation. If you've had several jobs, you probably have pension pots scattered across different providers. A SIPP lets you bring them all together into one place, making it much easier to manage your retirement savings.

If you are researching a pension for a child rather than yourself, my Junior SIPP guide explains the different contribution limits, parental responsibilities and long wait before the money can be accessed.

Who Should Consider a SIPP?

SIPPs are best suited for people who want more control over their investments and are comfortable making their own decisions. If you're happy with a simple "set and forget" approach, a workplace pension with a default fund might be perfectly adequate.

But if you want to choose your own funds, invest in individual shares, or simply have everything in one place, a SIPP is worth considering. Many people use a SIPP alongside their workplace pension - contributing enough to their workplace scheme to get the full employer match, then putting any additional savings into a SIPP.

The self-employed are particularly well served by SIPPs, since they don't have access to workplace pensions with employer contributions. A SIPP gives them a tax-efficient way to save for retirement with full control over their investment strategy.

What Are the Costs?

SIPP costs typically include a platform fee (usually 0.15% to 0.45% per year) and the charges on the funds you invest in (which can range from 0.1% for index trackers to 1.5% for actively managed funds). Some providers also charge dealing fees when you buy or sell investments.

Over a long period, charges make an enormous difference. A 1% annual charge difference over 30 years can reduce your final pot by over 25%. This is why many SIPP investors favour low-cost index tracker funds. Understanding how to choose your SIPP investments wisely is one of the most important decisions you'll make.

How Do I Get Started?

Getting started is straightforward. Choose a SIPP provider (popular options include Vanguard, AJ Bell, Hargreaves Lansdown, Interactive Investor, and Fidelity), open an account, and start contributing. You can also transfer existing pensions into your SIPP to consolidate everything in one place. Just be cautious about transferring pensions with valuable guarantees - always seek advice first, especially for defined benefit pensions.

Use our SIPP calculator to project what your pension could be worth at retirement based on your contributions, growth rate, and charges.