SIPP (Self-Invested Personal Pension) in 2022: a complete guide

8 December 2022 by Robin - 8 minutes of reading time


What is a SIPP? How is it different from a personal pension? If you are looking at different types of pension, you may decide that a SIPP is right for you. Indeed, this type of pension would allow for more flexibility in the type of investments that you can make. However, it can also be risky. Your Benefits will tell you everything you need to know about SIPPs.

What is a SIPP?

What is a SIPP?

A SIPP is a “self-invested personal pension”. The way that it works is similar to how a personal pension works. Additionally, some SIPPs may provide better investment opportunities than others. Indeed, it all depends on how you manage it, and what provider you chose.

Additionally, a SIPP allows individuals to accrue money is their pension pots to use once they enter retirement. The difference between personal pensions and SIPPs allow for more freedom in the investments that someone may decide to do.

There are various rules for a self-invested personal pension (SIPP). However, what they are depends on the amount that you chose to save, and the frequency at which you do so. Furthermore, you could chose to pay as lump sums, or make regular payments. Your employer could also make payments to your pot.

SIPPs are a registered type of pension. Indeed, this has been the case since 2006. Additionally, you could get tax relief on payments you make to it.

This is an authorised and regulated pension savings investment option for pensions tax relief. However, it may fall as well as rise. Your tax efficiency depends on investment decisions for your pensions scheme and tax year. You’ll be impacted by income tax.

Lastly, it is regulated by the financial conduct authority, especially when transferring your pension.

What can I do with this type of pension?

A SIPP allows you more freedom with how you chose to manage or invest your money. Indeed, you can choose to have various investments. Otherwise, you could pay a financial adviser who can aid you in making the most out of your pension.

Unlike the limitations of a personal pension, with a SIPP, you can make as many changes as you would like. Indeed, you are completely in control of your pension, and how you manage it. 

There are a number of things that you can invest in that you cannot invest in with other types of pensions. Indeed, this includes the following:

  • Land and properties, although note that you are not able to invest in a majority of residential properties, but can invest in commercial properties;
  • Trusts;
  • Collective investments, which include things like trust units, open-ended investment companies (OEICs) and real estate investment trusts (REITs);
  • Shares in companies, this includes investing in shares for companies in the United Kingdom and abroad
Note that this list is not the only investments that you can engage in, but only a portion of what is available to you with this type of pension. Additionally, note that the investments that you can make also depend on the provider that you chose to go with.

Furthermore, you can be the one to manage your finances. However, not everyone is experienced in this sector. As such, going with an authorised financial adviser is often a good idea. Indeed, then, you will be more protected, and more informed on what investments you should and should not make.

Can I withdraw money from a SIPP?

You can withdraw money from your pension pot once you turn 55 years old. However, this age will be increased to 57 by 2028. Indeed, you have a lot of options. For example, you may choose to keep your money in your pension pot. Then, the complete amount you have will continue to increase with investments. 

However, you could take all that is in your pot at once. Indeed, typically, you will not have to pay tax on the first 25%. However, you will have to on the rest. This is also the case for lump sums. The first 25% of your pot is tax-free.

You could also use your pot for a pension drawdown. Indeed, then, you could have flexibility for the payments that you receive for your retirement. Indeed, then, like the other options, the first 25% of you pot are tax-free. The rest will be treated like a regular income that you would pay taxes on.

You could receive guaranteed income for life. Indeed, you may know this as a lifetime annuity, and you could also get a fixed-term annuity. What this means is you would receive an income for a certain period of time, or the rest of your life, for making a certain investment. The first 25% of your pot are tax-free.

The first 25% of your pot in SIPPs are tax-free. Indeed, this is also the case for personal pensions:

Personal Pension withdrawal rules
Percentage of your Pension Fund that you can withdraw Will you have to pay taxes on your withdrawl?
25% No
75% (needs to be withdrawn within 6 months of withdrawing your 25%) Yes (typically)

SIPP: how much will I need to pay?

There is a lot of flexibility with how much you can pay for your SIPP. However, there are some charges that you will often need to pay. Some providers offer cheaper options, while others will demand that you pay up more. 

Indeed, there are a number of things that you may need to pay for. This includes charges that might arise with investing. Moreover, this could be percentage based or fixed fees.

Before choosing a provider, make sure that you have taken the time with the fees and charges linked with each one. Indeed, chose a provider based on your needs, as well as what you can and cannot pay.

You may have to pay annual administration charges. However, providers sometimes combine administration and investment charges. Additionally, you could have service or platform charges, which would pay for the administration costs incurred by your pension.

Lastly, you could have to pay ongoing charge figures. Indeed, this would be linked with the investments that you make. Additionally, you could have charges linked with setting up your SIPP.

Do I need to pay taxes on SIPP contributions?

Do I need to pay taxes on SIPP contributions?

If you make payments towards your SIPP, you could get tax relief for them. What this means is that your payments will benefit from additional payments made by the government

More specifically, what this means is that if you pay an amount, you will likely be able to receive additional payments from the government on top of that. For example, if you pay X amount as a lump sum in your pot, you will receive Y amount by the government. Then, the X + Y amount will be paid in your pot.

You may pay more taxes, at 40% for example. Then, you could be a higher-rate taxpayer. Then, you may claim more tax relief through your self-assessment tax return. More specifically, you could claim a maximum of £500. If you pay 45% (additional-rate taxpayer), you could claim £625 more.

Note that there is a limit. Indeed, this applies to both how much you can make in contributions, as well as the tax relief that you can receive. 

What kind of flexibility does a SIPP offer?

As said earlier, a SIPP offers flexibility when using various forms of investment. Additionally, many providers offer the option to change how much you make in investments in your SIPP. Indeed, most the time, this can be done by post or online.

This is also true for paying in lump sums. Many providers allow you to do this, and you can request this by post or online. Ask your provider if you are unsure.

Additionally, you can often have a workplace pension on top of a SIPP. Indeed, your employer may even match contributions that you make in your workplace pension. As such, it is often advantageous.

Also note that SIPPs are not immune to the annual allowance and lifetime allowance. Indeed, this is the case for all types of defined contributions pension.

Is this type of pension right for me?

Whether you want to invest your money in a SIPP is up to you. Indeed, if you live in the United Kingdom, and are younger than 75 years old, you can transfer the money that you have in your pension pot. 

You may have a workplace pension. In this case, typically, it is more advantageous to keep making payments into that type of pension. Indeed, this is because your employer will often be able to match your contributions. As such, continuing to invest in that pension could be better.

However, note that a SIPP is a more advanced type of pension pot. Indeed, typically, you want to be knowledgable about financial markets in order to get the most out of this type of pension. Otherwise, you may also benefit if you are able to pay yourself a financial adviser in order to manage your finances.

Note that investments are not easy to manage. Indeed, markets fluctuate. As such, your investment may go up, but it may also come down. If you are the sole person managing your SIPP, this will come with the associated responsibility and risk.

There are also a number of benefits that you could be eligible for. Then, Your Benefits can help. First, we offer a number of articles that describe how to get various benefits. They are linked throughout different articles, and you can find them on our top menu.

However, Your Benefits also offers a free simulator that can show you exactly what benefits you are entitled to. Indeed, there could be a bunch of financial aid you are eligible for that you are not claiming. And again, that service is free!

Robin is a writer for Your Benefits, writing about aids that people may be entitled to. He is currently working on his Master in journalism at the Institut Supérieur de Formation au Journalisme in Lille.

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