Personal Pension
What is a SIPP?
A Self-Invested Personal Pension (SIPP) is a type of pension plan that lets you choose how your retirement savings are invested.
It is a defined contribution personal pension, which means the value of your pension depends on how much you pay in, how your investments perform and the charges that apply.
The value of your pension can go down as well as up, and you could get back less than you pay in.
How a SIPP works in practice
With a SIPP, you decide how your pension savings are invested. This can be done by choosing a target-date fund or selecting your own investments from a range of funds.
A SIPP offers more flexibility than many workplace pensions, but it also means you are responsible for the investment decisions you make. They are designed for long term retirement saving and are not suitable for everyone.
Tax benefits of a pension
Like other personal pensions, a SIPP usually benefits from tax relief:
- If you’re a basic rate taxpayer, every £80 you pay in is usually topped up to £100 by the government (20% tax relief).
- Higher and additional rate taxpayers may be able to claim extra tax relief through their tax return.
Your pension investments can also grow free from UK income and capital gains tax.
Tax rules can change and depend on your individual circumstances.
When can you access your money?
Pensions are designed for use later in life. You can normally take money from your pension from age 55. From 6th April 2028, the minimum pension age rises to 57 so from this date, you will need to be age 57 or older before you can start taking money from your pension.
When drawing your pension, you can usually take up to 25% as a tax‑free lump sum, with the rest used to provide taxable income.
Tapered annual allowance
If you earn a high income, the government reduces or (“tapers”) your annual allowance. This is called the tapered annual allowance. If your threshold income is more than £200,000 and your adjusted income is more than £260,000 per annum then your annual allowance is reduced.
For every £2 your adjusted income is over £260,000 your allowance is reduced by £1.
The allowance can be tapered to as low as £10,000.
Example
Your adjusted income is £310,000 which is £50,000 over the £260,000 limit.
- Your allowance is reduced by £25,000 (half of £50,000)
- Your new annual allowance is £60,000 - £25,000 = £35,000
In simple terms, Threshold Income is your total taxable income, not just earnings, but excluding pension contributions. Adjusted Income is the same but includes all pension contributions, even those made on your behalf by your employer.
Is a SIPP right for you?
A SIPP can be suitable for people who want more flexibility over how their pension is invested and are comfortable making investment decisions or choosing from target-date fund options.
A SIPP may not be suitable if you prefer simple arrangements or guaranteed benefits.
We provide a non advised service, which means we can give information but cannot tell you whether a SIPP is right for you.
