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How to invest in a SIPP?

Is it your intention to invest in a SIPP? A SIPP, or “Self-Invested Personal Pension” scheme, operates somewhat like a standard personal pension. However, some SIPPs offer you a wider choice of investments you can manage yourself or with assistance from a financial adviser.

You invest in a SIPP to build an amount of cash that will generate an income for you in your retirement years. We have written this Moneyfarm blog to provide all the information you need to know about a SIPP.

💭 Are SIPPs worth it?Definitely
🟰 Is a SIPP the same as a pension? A SIPP is a type of pension
2️⃣ Can you have 2 SIPP pensions?You can open multiple SIPPs
💳 Can I transfer an existing pension into a SIPP?Yes, you can

What are SIPPs?

What is a SIPP? SIPPs are pension “wrappers” that allow you to invest money, thereby building up a pension pot for your retirement. The main reason you might decide to go down the SIPP personal pension route is that it gives you much more flexibility with regard to the type of investments you can select. The fact that SIPPs are “pension wrappers” also means that they provide you with certain tax benefits.

How SIPPs work

If you want to invest in a SIPP, you need to figure out how SIPPs work. The flexibility afforded by a self-invested pension plan is being able to decide how much to save, when to save, and the type of investments you can take up. As with any pension from any pension provider, your investments can grow tax-free and can be topped up through the UK government tax relief.

Are SIPPs alternatives to workplace pensions?

Setting up a SIPP shouldn’t be viewed as an alternative to having a workplace pension. If you already have a workplace pension, consider opening a SIPP as an additional pension.

The only time that you might think of a self-invested personal pension SIPP as an alternative to a workplace pension is if you are self-employed. As a self-employed person, you’re not entitled to a workplace pension other than if you have one relating to a time when you were employed rather than self-employed.

A SIPP is a good option for the self-employed because you can invest as much money as you can afford when circumstances permit. The only drawback when you invest in a SIPP as a self-employed is whether you have the knowledge to make informed investment decisions and manage your SIPP. If you don’t, you can seek out a self-employed pension package that is passively or actively managed by a trusted financial adviser.

Various types of SIPPs

A SIPP account can hold various types of investments, including SIPP commercial property. When you figure out how to invest in a SIPP, you will realise that you cannot invest directly in residential property. A SIPP property focussed account is no different from any other type of SIPP account. Property is just one of many investment options.

Junior SIPPs

There is also a Junior SIPP. Opening a Junior SIPP for your child is an excellent way of preparing your little one’s finances for the day they retire. It might seem an awfully long way away, but in that time, the account will be subject to compound interest, year on year, and the pension savings will have increased substantially in value by the time the pension savings can be accessed.

Low-cost SIPPs

Like all investments, the management fees vary from provider to provider. Moneyfarm offers a low-cost SIPP, you can check out Moneyfarm’s pension fees guide, which has a helpful article on the subject of the cost of saving into a pension. But bear in mind that there are other options than a SIPP. There is also the ISA vs SIPP debate – something we look at in a little more depth later on under “alternatives to SIPP schemes.”

SIPP pension rules

Let’s now look at the pension and tax rules that apply when you invest in a SIPP, starting with the fact that any gains your investments make will be free from capital gains tax.

SIPP contributions and tax relief

When you invest in a SIPP, you have to understand the SIPP rules. The SIPP rules allow you to contribute 100% of your annual salary into a SIPP account every tax year to a maximum of £40,000 per annum. The contributions that you make are topped by tax relief. The amount of relief you are entitled to will be the same as your highest rate of income tax.

Supposing you are a basic rate taxpayer and you want to contribute a total of £10,000 into your SIPP account. You only have to pay £8,000 because, in addition to that, your SIPP provider claims £2,000 (being 20% tax relief on the intended £10,000 total), boosting your contribution from £8,000 to £10,000.

If you are a higher-rate taxpayer, the SIPP rules say that you’re entitled to receive 40% or 45% tax relief on your contributions. It works the same way as tax relief for a basic taxpayer, but you can also claim back a further 20% or 25% via your annual self-assessment tax return. In other words, your £10,000 contribution only costs you £6,000 or £5,500.

When you invest in a SIPP as a high earner with an income of £240,000 or more, the tapered annual allowance comes into play. The other thing you need to remember as a high earner is your pension lifetime allowance.

SIPP Withdrawals

As regards SIPP withdrawals, once you reach the age of 55 (this changes to 57 in 2028), you are entitled to a 25% tax-free lump sum from your SIPP account. While it isn’t illegal to withdraw money from your SIPP earlier, the tax penalties for doing so are prohibitive at 55%.

Any money you withdraw from your SIPP after you’ve taken out your 25% tax-free lump sum at the age of 55 or later will be subject to income tax at your marginal rate.

How do I invest in a SIPP?

Investing in a SIPP isn’t as simple as just a case of finding the cheapest SIPP providers. First, you need to:

  • Establish your current pension situation. You might have a number of pensions, some of which are performing better than others.
  • Think about the degree of risk you are willing to take.
  • Determine how much you want to invest.
  • Identify what you would like to invest in.
  • Decide who will manage your SIPP.

If you want a place to start in terms of finding suitable SIPP providers, compare the rates, annual fees, account management, and investment strategies. Most of all, go for the best fit that will get you to your retirement goal.

How to manage your SIPP

You can view and manage your SIPP by logging into your SIPP online via your SIPP provider website or app. In addition, online access allows you to perform regular checks on your pension fund performance.

If your pension fund is losing value, don’t panic and sell or immediately move your money into another investment account. As with any investment, there will always be risk. SIPPs are long-term investments, and long-time investors know there will always be ups and downs in the market.

You need to have knowledge of the market to make any investment decision. For instance, when the market falls, selling at losses might not be the best option if the market is likely to recover. However, if the market fails to recover, there may be better plans than holding on to an underperforming investment.

You should speak with an independent financial advisor if you’re not comfortable managing your SIPP yourself.

Alternatives to SIPP schemes

While SIPP schemes are a great way of investing for your retirement, other investment options are open to you, such as investment trusts and stocks and shares ISAs. ISAs share the same tax benefits as SIPPs, but as an ISA is not a pension scheme, you can make withdrawals at any time without penalty.

You must always bear in mind that any type of investment involves risk. The value of your funds can fall as well as rise. Some investors can opt for exchange-traded funds (ETF) ISAs to diversify their investments, which can be a possible way of reducing risk.

The importance of planning your retirement

Effective retirement planning is essential. It will help to determine your standard of living when you retire. Whatever retirement age you have in mind, whether you are considering how to retire at 55 or later, the question of how much do I need for retirement remains key.

If you have moved around in terms of employment, you may have amassed several workplace pensions due to the automatic enrolment scheme. It is well worth revisiting this from time to time to consider tidying things up through a pension transfer. A personal wealth management company can help you with this and will make it much easier to track the performance of your investment choices and how well they are performing.

Be Safe

If you want help with finding the right private pension, make sure that the financial adviser you approach is 100% trustworthy.

Pension scheme fraud and scams are still rife, so before you open a discussion, ensure that the people you are talking to are approved and registered by the Financial Conduct Authority (FCA). Refrain from believing what a website says. Instead, check them out on the financial services register.


Can I take all my money out of a SIPP?

When you invest in a SIPP, you can withdraw all the money from it once you reach age 55 (57 from 2028), regardless of your working status. You can take out up to 25% tax free, while the rest will be taxed at your income tax band. However, if you make lump sum withdrawals, the first 25% of each lump sum withdrawal will be tax free, while the rest will be taxed.

What tax relief do I get on contributions to a SIPP?

You receive up to £40,000 tax relief on SIPP contributions per tax year. The £40,000 is your annual allowance. In addition, you also receive government tax relief. For basic rate taxpayers, the tax relief is at 20%, while higher rate taxpayers can claim additional tax relief of 20% on 40% income tax and 25% tax relief on 45% income tax.

Is a SIPP better than an ISA?

SIPPs and ISAs are tax-efficient ways to contribute to your pension. However, choosing the suitable option will depend on several factors. A SIPP will be the better option if you have more money to contribute towards your retirement, as the SIPP tax-free annual allowance is more generous than an ISA.

When you invest in a SIPP, you can receive up to 45% government tax relief on pension contributions and 25% tax free withdrawals upon retirement. However, an ISA is the better option if you want access to your money because SIPPs withhold your money until you are age 55. Also, ISAs withdrawals are tax free.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.