Posted in:

What is a SIPP?

For those making important investment decisions to ensure their financial security in retirement, a Self-Invested Personal Pension (SIPP) is an increasingly popular option. 

But what exactly is a SIPP and how does it differ from more traditional pension schemes? This SIPP guide will tell you everything you need to know. 

SIPPs Explained

A SIPP is a type of personal pension that gives investors more freedom, flexibility and transparency over their retirement pot.

You can invest in a wide range of investments through a SIPP, although it’s rare a single pension platform will allow you to invest in all types. This list includes:

  • Stocks and Shares
  • Exchange‑Traded Funds
  • Investment Trusts
  • Funds
  • Bonds
  • Bank Deposit Accounts
  • Commercial Property
  • Real Estate
  • Offshore Funds

Many hands-on investors prefer to invest in a SIPP for the control over what their pension is invested in. But it takes a lot of time, skill, experience and extra money to manage a DIY pension portfolio successfully for your retirement goals. 

If you’d rather the experts take on the full-time job of this decision-making on your behalf, it’s possible to get investment advice and guidance on fully-managed pension portfolios that adapt to reflect your changing financial situation as you get closer to retirement. 

The Moneyfarm Pension is a good option if you want to make confident, stress-free investment decisions to build a more financially secure future in retirement

The value of your SIPP depends on how much you put in it, how long you’re invested for, how your investments perform and how much you’re charged in management fees. 

Tax benefits of a SIPP

There are generous tax benefits available to you when you invest in your SIPP and when you take your money out in retirement. 

You can get tax relief on your pension contributions, relative to your income tax band. For basic rate taxpayers, this is essentially a 25% bonus from the government that’s added to each contribution. For higher and additional rate taxpayers, it’s even more, although you have to claim the rest through your self-assessment tax return.  

This means that investors only need to contribute £8,000 for a £10,000 contribution. Not only does this help investors save for retirement, but it can help maximise your returns through compound interest – this is where the returns your money generates are reinvested and earn their own return. The more money you have invested, the greater this impact on returns. 

There are also tax benefits to be had when you’re in retirement. Once you get to the age of 55, you can choose whether to take 25% of your pension savings tax-free. It’s worth remembering the age you can access your pension raises to 57 in 2028. 

You decide what to do with your lump sum, but once it’s gone, it’s gone. 

Whilst it’s a popular option with those wanting to pay off their mortgage, travel the world, or help their children on the property ladder, you might not have a need for a big lump sum. 

Instead, you can choose to take your tax-relief through your withdrawals. As you won’t have taken your tax-free lump sum, this is known as an uncrystallised funds pension lump sum (UFPLS).

If you have any questions about the options available to you when accessing your pension, Moneyfarm’s Free Drawdown Service can help empower you to make confident, stress-free decisions about your retirement income. 

Sign up to receive the Moneyfarm newsletter

Get the latest news and tips for managing your finances, straight to your inbox.

By making an investment, your capital is at risk.

SIPP Investment Options

As discussed above, a SIPP offers more flexibility and transparency over what you invest in through your pension.  Whether you decide to manage your pension investments yourself or want an experienced portfolio manager to make the investment decisions on your behalf, there are some important things you should consider to put your pension in the best position to reach your retirement goals.  

  • Your investments should reflect your financial situation and time horizon

To reach your financial goals, it’s important your investments reflect your financial situation and time horizon. The longer you have to invest, the more risk you can take with your investments, which increases the potential for return – although your investments can also fall in value. But building your portfolio to suit your investor profile, you’re more likely to make better investment decisions that helps maximise your returns. 

  • Have access to advice and guidance when you need it

It’s important your pension is built to suit your goals and continues to reflect your financial situation until you reach retirement. Whether you’re unsure you’re on track to reach your goals, what to do with a lump sum, or are struggling to understand the performance of your portfolio, it’s important you have access to advice and guidance – should you need it. Whether it’s digital or in person, this helps you live with the confidence that you’re making the right investment decisions with your pension. 

  • Your investments should be globally diversified

By spreading your money across a wide range of investments and geographies, you can more effectively manage risk in an increasingly complex and uncertain world. This allows you to take advantage of global opportunities whilst minimising your exposure to certain risks. 

  • Make sure you unlock good value

Too often people are paying too much for pension portfolios that are unsuitable or fail to deliver real value. At Moneyfarm we continuously strive to keep costs low, simple and transparent to empower our customers to make the best investment decisions for their financial situation, keep more of their money and maximise returns over the long term. 

  • Your pension should be accessible, convenient and transparent

It’s important you know exactly how much you have in your pension, how it’s performing, how much you’re paying and what you’re invested in – whenever you want. Gone are the days where you wait for your annual statement to see how much you have in your pension. Thanks to more sophisticated money management apps, saving for your retirement is now convenient, engaging and simple. This puts you in control and ensures you’re given the right tools to reach your retirement goals. 

Should I open a SIPP?

Whilst a SIPP is a great option for those who want added flexibility, transparency and control, it’s important you understand the pros and cons of a SIPP before investing in one.

Why you should open a SIPP

  • Consolidate your old pensions into one place – this can make your retirement savings easier and cheaper to manage
  • If you want more control – whether it’s over what you’re invested in, when you invest, or want to understand how your pension is performing
  • If you want more transparency – understand what you’re paying at any moment and keep on track with your goals
  • If you’re looking for better value – Whether you’re investing in a DIY portfolio or a fully-managed one, a SIPP can offer better value
  • If you want a more convenient pension plan – with most providers like Moneyfarm you can manage your retirement savings from your phone, anywhere and anytime
  • If you’re looking for more flexibility of contributions – whether you want to pay in lump sums or set up a direct debit to maximise your annual allowance
  • More control in retirement – decide how you access your pension savings with the opportunity to keep your money invested to maximise your retirement income

Why you might not want to open a SIPP

  • You have employer contributions to your current pension – you may lose benefits to investing in your workplace pension (companies are legally required to pay at least 3% of an employees salary into a workplace scheme) if you invest in a personal SIPP instead
  • You’re unsure you want more control – Whilst DIY investors need to be comfortable with managing their investments, wealth managers like Moneyfarm offer digital investment advice on fully-managed pensions, meaning that all you need to decide is when and how much to invest. Your pension is then managed for as long as you invest with us, and automatically adjusts as you get closer to retirement.
  • Exit fees – hidden charges like exit fees can be a real dent on the value of your pension. Make sure you understand all costs and charges before choosing or switching pension provider. At Moneyfarm we keep costs simple so you always know what you’re paying. 

Transfer your old pensions to the Moneyfarm SIPP

If a Self-Invested Personal Pension is right for you, you might want to consider consolidating your old pots into one place. 

As the average Brit has around 11 jobs in their career, they probably have 11 different pensions to go with it. If you’re not exactly sure what pensions you have, you can use the government pension tracing scheme set by the Department for Work and Pensions.

There are a number of reasons why you might think about transferring your pension:

  • You want a different pension service to the one your provider is offering
  • You want to consolidate your old pensions to simplify your plan
  • You want to pay less in fees
  • You want a higher income
  • You’re moving abroad and want a local scheme
  • Some older schemes may not offer certain freedoms, like UFPLS

It can be difficult to keep on top of your pensions savings, having your pensions in a number of different places can make this more confusing. If you don’t know what you’ve got, it’s nearly impossible to understand whether you’re on track to reach your retirement goals.

Consolidating your pensions into one place makes it easier to see how your investments are performing and know exactly what you’re paying in fees at any time.

If you’re consolidating your old plans into a personal pension, make sure your portfolio is suitable for your investor profile and time horizon. This will put your money in the best position to grow for the retirement income you need.

And if you’re not on track to get the retirement income you were hoping for, you can also easily identify and make the necessary adjustments you need to get there.

The industry is more flexible than ever before, which allows consumers to make the adjustments they need to get the retirement income they desire. But you’ll need to check whether you’ll pay a transfer fee to move your money to a new pension pot, or whether you’ll lose any benefits like a guaranteed annuity rate before you do anything.

Defined benefit transfer

  • The FCA believes defined benefit pensions offer more security than a personal pension, as they offer you a guaranteed income throughout retirement and benefits to a spouse or partner if you die.
  • These schemes are often index-linked to offer a form of inflation protection throughout retirement.
  • Not everyone with a final salary pension can transfer it.
  • You’ll need to get a ‘cash equivalent transfer value’ (CETV) from your pension provider before you transfer to value how much your pension is worth and whether you should transfer to a personal pension.
  • There are pension transfer calculators available that calculate whether your CETV represents good value.
  • If your pension is worth over £30,000, you’ll need to have a consultation with an Independent Financial Adviser before you transfer, otherwise many personal pension providers won’t accept you under regulation.

Defined contribution transfers

  • As defined contribution (DC) schemes rarely offer any guarantees, it’s easier to transfer your DC pensions
  • You can find your pension transfer value from your annual statement or from your pension provider.
  • Most company pension plans will allow you to transfer to a personal pension or other workplace scheme without speaking to a financial adviser, although this isn’t recommended if you’re unsure.
  • There can be some fees attached to transferring set by other providers, so make sure you’re aware of all charges before you transfer, as this could make a big impact on larger pension funds.

Making sure you plan for retirement in the best way for you and your family can be difficult. If you need any help, talk to an independent financial adviser and be sure to read our pension guide.

Match with a portfolio and start investing today


Simple, efficient and low cost, Moneyfarm helps you protect and grow your money over time.

Sign up with Moneyfarm today to match with an investment portfolio that’s built and managed to help you achieve your financial goals.

Make your money work harder for you, without breaking a sweat.

Get started