A Self-Invested Personal Pension (SIPP) is a popular way for self-employed business owners to save for retirement. Before choosing a contribution level, work out how much you may need to save for retirement.
Unlike employees who can benefit from workplace pensions (including employer contributions), you must make your own pension decisions if you’re a sole trader.
A SIPP is one option worth considering if you want greater control over your retirement savings.
Unlike many standard personal pensions, it lets you choose from a much wider range of investments while still benefiting from the tax advantages available to UK pension schemes.
A Self-Invested Personal Pension (SIPP) gives self-employed people more control over how they invest their pension. Contributions usually qualify for tax relief, while your pension investments can grow free from UK income tax and capital gains tax.
What are the key benefits of SIPPs?
- Tax relief on contributions: You can normally receive tax relief on personal pension contributions up to 100% of your relevant UK earnings for the tax year. The standard annual allowance is currently £60,000 for most people.
- Flexible investment choices: SIPPs allow you to invest in a wider range of assets than many stakeholder or personal schemes. These can include shares, bonds, funds and ETFs. Some full SIPPs also allow direct investment in commercial property.
- You have more control over your investments: You can choose your own investments, although many SIPP providers also offer ready-made portfolios or managed investment options.
- Pensions are tax-efficient: Like other pension schemes, investments within a SIPP can generally grow free from UK income tax and capital gains tax.
- Inheritance benefits: Under the current rules, unused funds in most discretionary pension schemes are normally outside the estate for inheritance tax purposes, regardless of whether the pension holder dies before or after age 75. Age 75 is instead important for the income tax treatment of pension death benefits.From 6 April 2027, most unused pension funds and pension death benefits will be brought into the deceased person’s estate for inheritance tax purposes under changes contained in Finance Act 2026. Some exemptions will remain, including certain death-in-service benefits.
What tax relief is available on pensions?
Pensions remain one of the most tax-efficient ways to save, as you can claim tax relief on your contributions.
- The standard annual allowance is £60,000 for most people. Separately, tax relief on personal contributions is normally limited to 100% of your relevant UK earnings for the tax year.
- Most personal SIPPs operating relief at source receive basic-rate tax relief of 20% automatically through the pension provider.
- You can claim extra relief via your Self Assessment tax return if you are a higher or additional-rate taxpayer.
- If you have already accessed your pension flexibly, a lower Money Purchase Annual Allowance (MPAA) of £10,000 may apply.
What can you invest in via a SIPP?
- Individual shares: UK and international stocks.
- Mutual funds and ETFs: Diversified investments in various sectors.
- Government and corporate bonds: Fixed-income securities.
- Commercial property: Some full SIPPs allow direct investment in commercial property, although this is not offered by every provider.
- Cash deposits: Lower-risk options for holding money within the pension.
How to set up a SIPP
- Choose a SIPP provider: Compare different providers based on platform fees, the range of investments on offer, reputation, reviews and usability. The Interactive Investor (ii) SIPP is Which? Recommended and charges fixed fees starting at just £5.99 per month. Find out more here.
- Open a SIPP account: Complete an application with your chosen provider. You will need to provide personal details and pass an ID verification check.
- Add funds to your SIPP: Set up regular or ad-hoc contributions to your pension.
- Select investments: Choose investments based on your personal goals.
- Monitor and adjust: Regularly review your pension and make any adjustments where needed.
How do you withdraw funds from your SIPP?
- You can normally start withdrawing from your SIPP from age 55, rising to 57 from 6 April 2028.
- You can normally take up to 25% of your pension tax-free, subject to the current lump sum allowance.
- You can withdraw funds in a number of ways:
- Lump Sum: Withdraw a one-off amount.
- Flexible Drawdown: Withdraw funds when you need them.
- Annuity Purchase: Convert your savings into a guaranteed income for life.
- Or a combination of any of the above.
Potential disadvantages of SIPPs
In this brief guide, we’ve highlighted some of the well-known advantages of SIPPs, but they’re not suitable for everyone. Here are some potential downsides.
- Investment risk: A SIPP gives you more control over your pension, so results depend more heavily on the investments you choose. However, you do not necessarily have to manage everything yourself, as many providers offer ready-made or managed options.
- Fees and charges: Some providers charge a low monthly fee, but you may also pay trading fees, foreign exchange charges or investment fund costs. Others use percentage-based platform fees. Make sure you work out the true cost of managing a SIPP.
- Complexity: Managing a SIPP can require more financial knowledge than using a straightforward personal pension, particularly if you choose your own investments.
Choosing a SIPP provider
Here are some important things to consider when you choose a SIPP provider.
- Platform fees: Providers usually charge a monthly fee or a percentage of your pension pot, and other charges may apply for trading or particular investments. It’s very important to work out the real cost over time.
- Investment range: Does the platform give you access to all the types of investments you’re interested in?
- Ease of use: Is the platform intuitive and easy to use?
- Reputation and Reviews: Sometimes, the best reviews are from people you know. You can also search online forums and review sites to learn more about the provider’s reputation.
ii – a Which? Recommended SIPP for the self-employed
We have partnered with Interactive Investor, a Which? Recommended Self-Invested Pension Provider (SIPP).
Interactive Investor charges low fixed fees – from £5.99 per month – not a percentage of your pension pot. You can find out more here.
We recommend speaking with a pension specialist who can provide personalised advice tailored to your specific circumstances and needs. The information on our site should not be used as a substitute for professional advice.