What is a SIPP?

A SIPP is a type of personal pension that lets you control the specific investments that make up your pension, such as funds, shares, investment trusts and bonds, usually through an investment platform. Like other personal pensions, it is a defined contribution pension: what you end up with depends on what goes in, how the investments perform and the charges.

You can have a SIPP as well as a workplace pension. The annual allowance applies to all your pensions added together.

SIPPs use relief at source. You pay in from your taxed income, and the provider claims 20% basic-rate tax relief from the government and adds it to your pot. For example, if you pay in £80, the provider adds £20, so £100 goes into the pension.

Relief at source is added even if you do not pay Income Tax. If you have no earnings, relief is available on up to £2,880 a year paid in, which becomes £3,600 with relief. Otherwise, relief is limited to contributions up to 100% of your earnings.

Before paying in you give the provider some personal details and make declarations about your contributions.

In England, Wales and Northern Ireland, if you pay tax above 20% you can claim extra relief on your Self Assessment tax return: a further 20% on contributions up to the amount of income you paid 40% tax on, and a further 25% up to the amount you paid 45% tax on. If you do not file a tax return, you can claim through HMRC instead.

GOV.UK’s example: someone earning £60,270 pays £12,000 into a relief at source pension. They can claim an extra 20% on £10,000, the amount of income taxed at 40%, but not on the other £2,000.

Scotland has different Income Tax bands, and the extra relief is claimed at rates matching those bands.

The £60,000 annual allowance covers everything paid into all your pensions in the tax year, including employer contributions and tax relief. It can be lower for high earners (the tapered annual allowance) or after flexibly accessing a pension (the £10,000 money purchase annual allowance). The guide on tax relief and allowances explains both.

Because you choose the investments, the results depend on those choices. The value can fall as well as rise and you may get back less than was paid in. Charges usually include a platform or account fee, fund charges and dealing charges, and they reduce the pot whether investments rise or fall.

Capital at risk. Past performance is not a guide to future returns.

Money in a SIPP normally cannot be taken before age 55, rising to 57 on 06/04/2028. Usually up to 25% can be taken tax-free (within the £268,275 lump sum allowance) and the rest is taxed as income. The options include cash lump sums, flexi-access drawdown and buying an annuity.

Check that a SIPP provider is authorised using the FCA Firm Checker. If a SIPP operator fails, the FSCS normally covers the pension at 100% up to £85,000 where it is able to pay compensation. If a UK-regulated provider of an investment held in the SIPP fails, the FSCS may pay up to £85,000 per member. The FSCS does not cover falls in investment value.

Whether a SIPP fits a particular situation depends on individual circumstances. MoneyHelper offers free, impartial guidance and a regulated financial adviser can give personal advice. Tax rules can change.