Pillar guide · SIPPs

SIPPs explained — the complete UK guide.

What a Self-Invested Personal Pension is, who it's for, what it costs, how to open one, how to transfer in, and how to draw from it in retirement. The full picture in plain English.

By Pension Bible editorial team·Last reviewed 9 April 2026·15 min read

What is a SIPP?

A SIPP — Self-Invested Personal Pension — is a type of personal pension that gives you control over how your money is invested. Where a workplace pension typically offers a limited menu of pre-selected funds (sometimes just one default option), a SIPP opens up a much wider investment universe: index funds, actively managed funds, exchange-traded funds (ETFs), investment trusts, individual shares, government bonds, and in some cases commercial property.

The "self-invested" part is the key distinction. You choose what to buy, when to buy it, and when to sell it. The pension wrapper itself works identically to any other UK pension — you get tax relief on contributions, the investments grow free of capital gains tax and (mostly) income tax, and you can access the pot from age 55 (rising to 57 from April 2028).

SIPPs have existed since 1989, but they used to be expensive, complex products aimed at wealthy investors with large pots. The market has changed dramatically. Today's low-cost SIPP platforms — Vanguard, Interactive Investor, AJ Bell, Fidelity — offer simple, cheap access to the same investment universe that used to require a financial adviser and a six-figure minimum. You can open a SIPP with most providers for no upfront cost and start contributing from £1.

Who are SIPPs for?

SIPPs are not for everyone, and they're not inherently "better" than a workplace pension. They solve specific problems that certain groups of people have.

The self-employed. If you don't have an employer, you don't have a workplace pension. A SIPP is the most common way for sole traders, freelancers, and contractors to save for retirement with tax relief. You can contribute up to £60,000 per year (or 100% of your earnings, whichever is lower) and receive tax relief in the same way as an employed person. Our self-employed pension calculator can show you the tax saving.

Company directors. If you run a limited company, you can make employer contributions to a SIPP from the company — these are deductible against corporation tax and don't count as personal income. This is one of the most tax-efficient extraction routes available to UK company directors. See our director pension calculator for the specific numbers.

People consolidating old workplace pots. If you've changed jobs several times, you probably have multiple small pension pots with different providers, each charging different fees. Transferring them into a single SIPP simplifies your admin and usually reduces total costs. Our pension consolidation calculator can model the saving.

People who want investment choice. If your workplace pension only offers a handful of funds and you want access to global index trackers, specific sectors, individual shares, or investment trusts, a SIPP gives you that flexibility.

People approaching retirement who want drawdown. Not all workplace pensions offer flexible drawdown. If yours doesn't, transferring to a SIPP that does can give you more control over how and when you take income in retirement.

SIPP fees — the two layers you need to understand

SIPP costs come in two layers, and your total cost is both combined. This is exactly the same structure as workplace pensions, but with a wider range of fee models.

Layer 1: Platform fee

This is what the SIPP provider charges you for the account. It comes in two flavours:

Percentage-based: A percentage of your pot value, charged annually. Vanguard charges 0.15% (capped at £375/year). AJ Bell charges 0.25%. Hargreaves Lansdown charges 0.45% on the first £250,000, declining in tiers above that.

Flat-fee: A fixed monthly or annual charge regardless of pot size. Interactive Investor charges £5.99/month (£71.88/year). Bestinvest charges £5.99/month for funds.

The crossover point is important. Below about £50,000-£100,000, percentage-fee platforms are usually cheaper because the flat fee works out as a high percentage of a small pot. Above £100,000, flat-fee platforms become dramatically cheaper. Interactive Investor at £71.88/year on a £200,000 pot is 0.036% — about a tenth of what Hargreaves Lansdown would charge.

Layer 2: Fund charges (OCF)

Whatever you invest in has its own charge — the Ongoing Charges Figure (OCF). This is the same regardless of which platform you're on. A Vanguard FTSE Global All Cap index fund charges 0.23% OCF whether you hold it on Vanguard's own platform, Interactive Investor, or AJ Bell.

Index trackers typically charge 0.05-0.25% OCF. Actively managed funds charge 0.5-1.5%. Your choice of fund is at least as important as your choice of platform when it comes to total cost.

Your total annual cost = platform fee + fund OCF. On a £100,000 pot invested in a global index tracker:

Over 25 years with £500/month contributions, that difference between the cheapest and most expensive option in this table compounds into tens of thousands of pounds. Use the calculator below to see the impact for your specific pot size and contribution rate.

For a detailed breakdown of all the fee types and what's reasonable, see our full pension fees guide.

The investment universe — what you can hold in a SIPP

The range of investments available depends on the SIPP provider, but most modern platforms offer:

Index funds and ETFs. The bread and butter of low-cost investing. A single global index fund (like the Vanguard FTSE Global All Cap or the HSBC FTSE All World) gives you exposure to thousands of companies worldwide for under 0.25% per year. For most SIPP investors, this is all they need.

Actively managed funds. Funds run by professional fund managers who try to beat the market. They charge more (typically 0.6-1.5% OCF) and the evidence is that most underperform their benchmark index after fees over the long term. Some investors prefer them nonetheless.

Investment trusts. Listed on the stock exchange like shares, these are closed-ended funds that can trade at a discount or premium to their underlying asset value. They can use gearing (borrowing) to amplify returns and are common for income-focused strategies and specialist sectors like infrastructure or private equity.

Individual shares. Most full SIPPs allow you to hold individual UK and international shares. This gives maximum control but requires more knowledge and time. Dealing fees typically apply (£5-£12 per trade on most platforms).

Government and corporate bonds. Gilts and corporate bonds can be held directly or through bond funds. Increasingly relevant as you approach retirement and want to reduce equity exposure.

Cash. All SIPPs let you hold cash within the wrapper. Interest rates on SIPP cash vary significantly between providers — check before parking large amounts.

The one investment most SIPPs do not allow is residential property. You can hold commercial property in a SIPP, but this requires a "full" SIPP (rather than a "platform" or "lite" SIPP) and comes with significant complexity and cost. For most people, it's not relevant.

How to open a SIPP — the practical steps

Opening a SIPP is straightforward and can usually be completed online in 15-20 minutes:

1. Choose a provider. Compare platforms based on your pot size and investment preferences. For pots under £100,000, Vanguard or AJ Bell are typically cheapest. For pots above £100,000, Interactive Investor's flat fee becomes attractive. Use our pension fee calculator to compare.

2. Complete the application. You'll need your National Insurance number, a UK bank account for contributions and withdrawals, and standard identity verification (passport or driving licence). Most providers verify identity electronically.

3. Set up contributions. You can contribute via direct debit (monthly), one-off bank transfer, or by arranging employer contributions. Your provider will claim basic-rate tax relief (20%) automatically and add it to your pot — this usually takes 6-10 weeks.

4. Choose your investments. This is the step that paralyses many people. If you're unsure, a single global equity index fund is a perfectly reasonable starting point. You can change your mind later at no cost (other than any dealing fees).

5. Claim higher-rate tax relief. If you're a higher-rate or additional-rate taxpayer, your SIPP provider only claims basic-rate relief. You claim the extra 20-25% through your self-assessment tax return (or by calling HMRC to adjust your tax code). Don't forget this step — it's worth hundreds or thousands per year.

Transferring into a SIPP — what to check first

Transferring existing pension pots into a SIPP is one of the most common reasons people open one. The process itself is simple — your new provider handles the paperwork — but there are critical checks to make before you initiate a transfer.

Guaranteed annuity rates (GARs). Some older pension policies (particularly those taken out before 2000) include a guaranteed annuity rate — a promise to convert your pot into income at a rate far higher than anything available on the open market today. A GAR of 8% on a £100,000 pot would give you £8,000/year guaranteed for life. The best open-market annuity rate in 2026 might give you £5,500-£6,000. That GAR is worth keeping even if the old policy charges higher fees. GARs are lost permanently on transfer.

Protected tax-free cash. The standard tax-free lump sum is 25% of your pot. Some pre-2006 pension policies have protected rights to a higher percentage (sometimes 100% in very old contracts). These protections are lost on transfer. Check before moving.

Exit fees. Most modern pensions have no exit fees, but some legacy policies charge up to 1% (the FCA cap since 2017). Some very old policies have higher exit charges that were grandfathered. Ask for the exact figure in writing.

Employer contributions. If you transfer your active workplace pension to a SIPP, your employer will stop contributing. Most employers only pay into their chosen scheme. The better approach is usually to keep the workplace pension active (to capture employer contributions) and transfer only old, dormant pots.

In-specie vs cash transfer. Most transfers involve selling your old investments, transferring as cash, and buying new investments in the SIPP. This creates "out of market" time (typically 2-6 weeks). Some transfers can be done "in specie" — the investments transfer directly without being sold — if both providers hold the same funds. Ask your new provider whether in-specie transfer is available.

SIPP vs workplace pension — when each is better

This isn't an either/or decision for most employed people. The optimal setup is usually both: a workplace pension for employer contributions, and a SIPP for additional savings with better investment choice and lower fees.

Workplace pension wins when:

• Your employer contributes (you lose this if you opt out)
• Your employer offers salary sacrifice (NI savings on top of tax relief)
• The workplace scheme has competitive fees (under 0.4% total)
• You want simplicity and don't care about investment selection

SIPP wins when:

• You're self-employed or a company director
• You want investment choice beyond the workplace default fund menu
• Your workplace scheme has high fees (above 0.5% total)
• You're consolidating old pots from previous employers
• You're approaching retirement and want flexible drawdown options
• You want to make additional voluntary contributions beyond your workplace pension

The common pattern for employed people with moderate to high incomes: contribute enough to the workplace pension to get the full employer match, then direct any additional pension saving into a low-cost SIPP with better investment options.

Tax relief in a SIPP

Tax relief in a SIPP works identically to any other pension. There is no special SIPP tax treatment — the wrapper is the same, only the investment options differ.

How it works in practice: You contribute from post-tax income. Your SIPP provider claims basic-rate relief (20%) from HMRC and adds it to your pot. If you contribute £800, HMRC adds £200, and £1,000 goes into your pension. This happens automatically but takes 6-10 weeks.

If you're a higher-rate taxpayer (40%), you've paid 40% tax on the income but only received 20% back through the provider. You claim the additional 20% through self-assessment. On a £1,000 gross contribution, this is an extra £200 back to you (either as a tax refund or a reduction in your tax bill).

If you're an additional-rate taxpayer (45%), the extra relief is 25% — claimed the same way.

The annual allowance applies across all your pensions: workplace and SIPP combined. In 2025/26, it's £60,000 or 100% of your earnings, whichever is lower. If you exceed it, you pay a tax charge that claws back the excess relief. You can carry forward unused allowance from the three previous tax years — our pension tax guide covers this in detail. See our pension fees guide for how fees interact with contributions.

Drawing from a SIPP in retirement

From age 55 (57 from April 2028), you can access your SIPP. There are three main options, and you can combine them.

Flexi-access drawdown

The most popular option in 2026. You designate your pot (or part of it) for drawdown. You take 25% tax-free (either as a lump sum upfront or in stages), and the remaining 75% is taxed as income when you withdraw it. The pot stays invested and (hopefully) continues to grow. You choose how much to take and when — there's no requirement to take a regular income.

The advantage: flexibility and continued investment growth. The risk: you can run out of money if you withdraw too much or if markets fall sharply early in retirement (sequence-of-returns risk). Our pension drawdown calculator can help you model sustainable withdrawal rates.

Uncrystallised Funds Pension Lump Sum (UFPLS)

A less common option where you take lump sums directly from your uncrystallised pot. Each lump sum is 25% tax-free and 75% taxable. No need to formally enter drawdown — you just take chunks as needed.

The tax treatment is identical to drawdown; the difference is administrative. UFPLS can be simpler for people taking occasional lump sums rather than regular income.

Annuity purchase

You use some or all of your pot to buy a guaranteed income for life from an insurance company. The annuity rate depends on your age, health, pot size, and prevailing interest rates. In 2025/26, a healthy 65-year-old might get roughly 5.5-6.5% on a level annuity (no inflation protection) — meaning a £100,000 pot buys £5,500-£6,500/year for life.

Annuities fell out of favour after the 2015 pension freedoms removed the requirement to buy one, but they've become more attractive as interest rates have risen. For people who want certainty and worry about longevity risk, an annuity covering essential expenses — with the rest in drawdown — is a reasonable hybrid strategy. See our annuity calculator for current indicative rates.

Annual allowance considerations

The annual allowance is the maximum you can contribute to all pensions in a single tax year while retaining tax relief. In 2025/26, it's £60,000 or 100% of your earnings, whichever is lower.

Key points for SIPP holders:

• The allowance applies across all pensions. If your employer puts £10,000 into your workplace pension (including salary sacrifice), you can contribute up to £50,000 to your SIPP.
• Carry forward: If you didn't use your full allowance in any of the three previous tax years, you can carry the unused portion forward. This is particularly useful for the self-employed with variable income or for people receiving bonuses or windfalls.
• Tapered annual allowance: If your "adjusted income" exceeds £260,000, your annual allowance is reduced by £1 for every £2 above £260,000, down to a minimum of £10,000. This mainly affects high earners and company directors.
• Money Purchase Annual Allowance (MPAA): If you've already taken taxable income from a defined contribution pension (through drawdown or UFPLS), your annual allowance for future contributions drops to £10,000. This is a permanent restriction and a critical consideration before starting drawdown.

FAQ

What's the difference between a SIPP and a personal pension? A SIPP is a type of personal pension. The distinction is investment choice: a standard personal pension (like PensionBee or a traditional insurance company pension) offers a curated menu of ready-made funds. A SIPP offers the full investment universe — funds, ETFs, shares, bonds, investment trusts. In practice, the term "SIPP" is used for any personal pension with broad investment options.

Is a SIPP worth it for small amounts? It depends on the provider. Percentage-fee SIPPs (like Vanguard at 0.15%) are cost-effective even for small pots. Flat-fee SIPPs (like Interactive Investor at £5.99/month) are expensive on small pots — £71.88/year on a £5,000 pot is 1.44%. Match the fee model to your pot size.

Can I have a SIPP and a workplace pension? Yes, and most employed people who use a SIPP have both. The annual allowance (£60,000) applies across all pensions combined, but there's no rule limiting the number of pension accounts you can hold. The standard approach: contribute enough to your workplace pension to capture the full employer match, then put additional savings into a SIPP.

How do I claim higher-rate tax relief on my SIPP? Through your self-assessment tax return. Enter your gross pension contributions in the pension section. If you don't file self-assessment, you can call HMRC and ask them to adjust your tax code. Either way, the extra relief comes to you as a tax refund or reduced tax bill — not as a top-up to your pension pot. Our pension tax guide covers this in detail.

What happens to my SIPP if I die? If you die before 75, the SIPP can be passed to your beneficiaries completely tax-free — no income tax, no inheritance tax (pensions sit outside your estate for IHT). If you die after 75, beneficiaries pay income tax at their marginal rate on withdrawals but still no IHT. This makes SIPPs one of the most tax-efficient inheritance vehicles available.

Can I transfer my SIPP back to a workplace pension? In principle yes, if the workplace scheme accepts transfers in. In practice it's uncommon — most people transfer the other way. The main reason to transfer into a workplace scheme would be to access salary sacrifice NI savings on the transferred amount, which is not how salary sacrifice works (it applies to ongoing contributions, not transfers).

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Pension Bible is an editorial publication, not a financial adviser. The information in this guide is general guidance based on publicly available data. For personal recommendations about your specific pension, speak to an FCA-regulated financial adviser. You can find one through Unbiased or VouchedFor.