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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

AJ Bell pensions expert Tom Selby considers the case of a reader trying to understand if there are any advantages to having a self-invested personal pension
Thursday 08 Jul 2021 Author: Tom Selby

I have just read a piece about the tax advantages of a SIPP, but I have already retired and live on my existing pensions. 

I am 68 and have never had (or understood) a SIPP. Is it possible to gain a small advantage by opening a SIPP and is one any better than another in my situation?


Tom Selby, AJ Bell Senior Analyst says:

As you have not yet reached your 75th birthday, from a tax perspective, the tax advantages of a SIPP for you should be the same as for anyone else aged 18 or over.

These include:

Contributions qualify for pensions tax relief, meaning you benefit from a 25% upfront boost
You can get a quarter of your pension tax-free from age 55, with the rest taxed in the same way as income
You have flexibility over how to access and invest your retirement pot
You can pass on your retirement pot tax-free if you die before age 75, while if you die after 75 the money will be taxed in the same way as income when your beneficiary or beneficiaries come to access it

Note that once you reach your 75th birthday you will no longer receive tax relief on pension contributions.

Because SIPPs benefit from generous tax treatment, the maximum you can contribute each year is restricted by the Government to 100% of your ‘relevant earnings’ or £40,000, whichever is lower.

Relevant earnings include earned income like salary, commission and bonuses. Dividends, rental income and pension income do NOT count as relevant earnings.

If you have ‘flexibly accessed’ income from a retirement pot, then your annual contribution allowance will be reduced from £40,000 to £4,000. ‘Flexibly accessing’ your pension includes taking taxable income via flexi-access drawdown or certain ad-hoc lump sums from a ‘defined contribution’ scheme.

Buying an annuity or taking an income from a ‘defined benefit’ scheme won’t trigger a drop in the annual allowance.

Finally, those who don’t have relevant earnings can still pay £3,600 a year into a SIPP, inclusive of tax relief.


There are a number of factors to consider when deciding whether to invest in a SIPP, including your priorities, personal circumstances and tax position.

If you decide a SIPP is the right option, you should have a look around the market to find one that suits your needs. Things like the amount of support the firm provides and the investment options available will vary from provider to provider.

Keeping your costs as low as possible should be an absolute priority, so make sure you understand the charges you will pay both for administering your pension and for your investments too.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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