Self-Invested Personal Pension (SIPP)

A SIPP is a personal pension, the kind you arrange yourself rather than through an employer. What sets it apart is control: instead of a provider’s short list of funds, you choose the investments, such as individual shares, investment funds and bonds. The tax rules are the same as for any other personal pension, provided the scheme is registered with HMRC.

Like any defined contribution plan, a SIPP pays out whatever has built up, and nobody promises an income, as a defined benefit scheme does. Money can come from you, your employer or someone else, such as a partner, and you can usually transfer other pension pots in.

For an American reader, a SIPP sits closest to a self-directed traditional IRA: tax relief now, tax on most withdrawals later and an age lock. Canada’s counterpart is the RRSP, and Australia’s is super, though super contributions are taxed as they go in.

Most SIPPs use relief at source. You pay from taxed income, and the provider claims basic-rate relief of 20% from HMRC and adds it to the pot, so every £80 you pay becomes £100. Non-taxpayers get it too: on up to £2,880 a year, which becomes £3,600, if you have no earnings, or on payments up to 80% of your earnings if you earn too little to pay tax.

Higher and additional-rate taxpayers in England, Wales and Northern Ireland claim the rest themselves, usually through Self Assessment: an extra 20% on contributions up to the amount of income taxed at 40%, and 25% on contributions up to the amount taxed at 45%. Scottish taxpayers claim at Scotland’s own rates. This extra relief arrives as a refund or a lower tax bill, not in the pot, and it is easy to miss.

Workplace pensions often use a net pay arrangement instead, taking your contribution from pay before income tax, so full relief is automatic. Either way, relief applies only to contributions up to 100% of your relevant UK earnings for the year.

The annual allowance is £60,000 for the 2026/27 tax year. It covers everything paid into all your pensions during the tax year, by you, your employer or anyone else, including the tax relief, plus the growth in any defined benefit promise. Going over it triggers a tax charge reported through Self Assessment, unless unused allowance from earlier years covers the excess. Four rules change what you can put in without a charge:

You can usually start drawing at 55. The normal minimum pension age rises to 57 on 6 April 2028, except for people with a protected pension age and members of the firefighters’, police and armed forces schemes. Before that age a payment is unauthorised unless you’re retiring because of ill health, and unauthorised payments are taxed at up to 55%. Firms offering loans or cash advances against a pension before that age are arranging exactly that kind of payment.

Up to 25% of what you’ve built up can usually come out tax-free, capped across all your pensions by the lump sum allowance of £268,275; the lifetime allowance was abolished on 6 April 2024. The rest is taxed as income in the year you take it, and the tax taken at source may not match your final bill. How much to draw each year is a withdrawal rate question. The main routes, which you can mix, are:

A SIPP and an ISA shelter investments from UK income tax and capital gains tax in the same way while the money stays invested. The difference is timing: the SIPP gives relief going in and taxes most withdrawals, while the ISA gives no relief and taxes nothing on the way out.

The SIPP usually suits money you won’t need before pension age, especially if you pay higher-rate tax now and expect basic-rate tax later. The ISA suits anything you might need sooner. In Decumulation the two work together with the State Pension: pension income fills the lower tax bands, and ISA withdrawals top up spending without adding to taxable income.

The provider usually pays the fund to the people you nominated, as a lump sum or as drawdown income. If you die before 75, most lump sums and drawdown payments reach them free of income tax, provided a lump sum is paid within two years of the provider learning of the death and stays within your £1,073,100 lump sum and death benefit allowance. If you die at 75 or over, they pay income tax on what they receive.

Inheritance Tax is the bigger change. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits count in the estate, and personal representatives must report and pay the tax. Death-in-service benefits stay outside, and money passing to a surviving spouse or civil partner is still exempt. Plans that spent ISAs and other savings first to leave a SIPP untouched for heirs may need a second look.