What is a SIPP?



A SIPP, or self-invested personal pension, is a type of personal pension that gives you a much greater degree of freedom than any other pension. You’re in complete control of how and where your money is invested, and make the decisions that determine how your pot performs. The value of investments can change, of course, so remember that you could lose money as well as make it.

Learn more about Self-invested personal pensions (SIPPs) from Tom Selby, our Head of Retirement Policy. Find out how they differ from other pension types, what investment options are available, and how you can access your money in retirement.

How does a SIPP work?

You can make both regular and one-off payments into your SIPP. Even putting a small amount away early will make a difference to how much you’ll eventually have to fund your retirement.

For example, if you start paying £200 a month into your account at age 30 with a 5% growth rate each year, your SIPP could be worth £163,000 by the time you reach 60. Starting at age 45 could result in a SIPP worth £53,000. Our regular investment service helps keep your costs low, with a monthly dealing charge of just £1.50. You can also transfer an existing pension or SIPP to us for free.

Your employer can make contributions to your SIPP, either as regular or one-off payments. Find out more about employer contributions.

Work for yourself? As well as making personal SIPP contributions, if you own your own business, you can make employer contributions too. Doing this can lower your business's corporation tax bill, as well as your personal income tax bill. Read more about pensions for the self-employed.

What are the benefits of a SIPP?

SIPPs offer the same great tax benefits as other pensions. For example, for every £8,000 you contribute to your SIPP, the government pays in £2,000. And if you're a higher-rate tax payer in the UK, you can claim even more tax relief.

How you’re taxed depends on your circumstances, though, and pension and tax rules could change. Before investing in a SIPP, remember that as it’s a pension, your money is going to be locked away until you reach at least 55 years of age (57 from 2028).

Anyone under the age of 75 can pay into a SIPP. Even if you’re not earning, you can contribute up to £2,880 net each tax year and receive tax relief. And if you’re a parent, you can open a Junior SIPP for each child – just remember that they won’t be able to access it until they reach at least age 55 (57 from 2028).

What can I invest in?

Our SIPP lets you choose from a market-leading range of investments, including bonds, shares from 21 markets, around 2,000 funds, investment trusts, exchange-traded funds (ETFs) and exchange-traded commodities (ETCs). In fact, you may struggle to find such a wide range of investment options anywhere else.

If all these options sound a bit overwhelming and you’re not sure what to choose, our Pension Builder fund could help you get off the mark. Powered by the AJ Bell Balanced fund and managed by our in-house investments team, the Pension Builder is designed for those looking for a standard option aiming for steady, long-term growth.

Remember, with a SIPP, you can change your investments at any time – you could get started with the Pension Builder fund and change this later once you’ve had a chance to look into your options.

Who can open an account?

You can open and pay into a SIPP if you’re under 75 and a UK resident, or if you’re working overseas with UK earnings. In a SIPP, you’ll be making your own investment decisions, so you need to be confident in what you are doing and prepared to do the research that goes with running your own pension scheme.

If you like, you can transfer your existing pensions into a SIPP. But keep in mind some pensions may be better off left where they are – those which offer guaranteed pension payments, for example, or which charge steep fees to transfer out. If you’re not sure what to do, it’s a good idea to ask a suitably qualified financial adviser.

If you have a final salary (also known as ‘defined benefit’) pension, you must seek advice before transferring it. We can only accept a final salary pension worth £30,000 or more if a suitably qualified financial adviser has recommended that the transfer is right for you. To confirm you’ve received their recommendation, you and your adviser need to complete this declaration form.

What are the charges?

Our award-winning SIPP has no set-up fees, or charges when you transfer in another pension. You can deal online from just £1.50 for funds and £9.95 for shares. See our SIPP charges and rates for full details, and use our pricing calculator to estimate your charges.

How do I access my SIPP?

Once you reach age 55 (57 from 2028), you can access your whole pension pot. You decide how and when to use the money you’ve built up in your SIPP to provide you with an income.

You can take up to 25% of your fund (up to the monetary limit of £268,275) as a tax-free lump sum unless you have protection that entitles you to a higher lifetime allowance, and use the rest to provide you with a pension: by taking income from your SIPP, or by buying an annuity. Or you can take a series of lump sums from your SIPP – it’s flexible. For more information on this topic, see our options at retirement page, or our guide to drawdown.

The freedom a SIPP offers you compared to a traditional pension can far outweigh the extra time it takes to manage it yourself. But a SIPP isn’t right for everyone. AJ Bell doesn’t offer investment advice, so you need to be sure you’re comfortable with managing your SIPP yourself before applying.

We’ve other accounts that may be more suitable for your needs, including ISAs and Dealing accounts. If you’re not sure, compare the benefits of our accounts to see which could be your best option.

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