How to set up a SIPP: a comprehensive guide

What is a SIPP?

A self-invested personal pension (SIPP) is a special kind of personal pension.

It lets you choose the investments that make up the fund, which makes it the most flexible kind, and an attractive option for those who like to take a more active role in investment.

If you are considering setting up a personal pension for yourself or a dependant, this introduction will help you decide if a SIPP may be a suitable option and also tell you how to set one up.

Pension saving into a SIPP

A SIPP lets you take more control over your retirement saving. It will offer the same tax benefits as any other pension, but gives you more control over how and where your contributions are invested.

Opening a standard personal pension (such as a stakeholder pension) is relatively simple – your involvement is generally limited to making monthly contributions, and all the investments are managed for you.

A SIPP requires that you take a more hands-on role. This DIY aspect generally makes them cheaper, but you shouldn’t base your decision on cost alone.

Plenty of high earners opt for SIPPs as a way to be more involved and for the chance of greater returns.

However, they are also a good option for people that don’t have access to a workplace pension, such as the self-employed.

A SIPP may also be useful if you have lots of old workplace pensions that you would like to combine into one pot.

What are the pros and cons of a SIPP?

The pros of a SIPP

Setting up a SIPP can be a good way to combine several existing pension pots into one.

This means you are no longer trying to keep track of lots of plans from previous employers.

A SIPP also gives you more freedom to manage your pension fund to meet your changing needs.

You can often flex the amount you pay into your SIPP, so, for instance, you can take payment holidays and contribute large one-off sums. This can be particularly valuable for self-employed people with fluctuating earnings.

Also, you are not bound by your scheme’s limited choice of funds, so you have greater control over the level of risk you are exposed to and the growth potential of your investments. Management fees may also be lower.

The cons of a SIPP

As you choose where to invest your money with a  SIPP, you may have no-one else to blame if things go wrong.

Taking bold investment decisions without adequate advice may mean you lose money, so it is crucial that you choose your investments wisely.

You may also find that a SIPP takes up more of your time than you expected.

You can solve this problem by engaging a financial adviser to help you.

They can run the SIPP on your behalf and also help you choose investments that match your goals and risk profile.

How do I set up a SIPP?

You can approach a SIPP provider directly and they will steer you through the process.

However, if you’re unsure where to start, a more prudent approach may be to talk to a financial adviser.

They can help you choose the best provider for your needs and work with you to create an investment strategy and portfolio.

How to set up a SIPP:

1. Identify all your current pensions: Decide which ones you want to move into the SIPP (some may be best left where they are).

2. Choose a provider: Consider platform fees, the choice of investments and if they offer managed funds (particularly useful if you’re an inexperienced investor or need some guidance).

3. Decide how much risk you can take: The rule of thumb is that you can take more risk the younger you are, and the more you earn. Higher risk typically means higher rewards over time, but more likelihood of short-term losses. Remember that taking very low risk is a risk in itself – because your investments may not grow enough for you to have a comfortable standard of living in retirement.

4. Consider getting advice: A financial adviser can help you decide where  to invest, how much you need to save and ensure your retirement plans are as tax-efficient as possible.

What are the pension rules on SIPPs?

To open or pay into a SIPP, you must be under the age of 75. You can also open a SIPP for a dependent, including someone under 18 (this is known as a Junior SIPP and has its own special rules).

You can also make payments into someone else’s SIPP (e.g. your spouse’s or parent’s) but they must set up the SIPP themselves.

The rules on SIPPs are the same as those for pensions in general.

You benefit from the same tax relief and tax-free growth, the same annual allowance, and can access your pot in all the usual ways from the age of 55 (57 from April 2028).

Find out more about how pensions work.

Do I get tax relief on a SIPP?

As with any defined contribution pension, when you pay into a SIPP, you get tax relief at your highest tax rate (so basic-rate taxpayers get 20%, higher-rate taxpayers can claim 40%, and additional-rate taxpayers get 45%).

However, only basic rate tax relief is applied automatically - so, if you pay higher or additional rate tax, you will need to claim the outstanding relief you’re entitled from HMRC.

You can do this in your tax return, or if you don’t complete one, by using the government’s online claim service.

Given that SIPPs are also essentially an investment portfolio you control, you can view it as the most tax-efficient way to invest in a wide range of different assets.

Find out more about pension tax relief.

What investments can I put into my SIPP?

A SIPP lets you explore a much broader range of investment options than a standard personal pension.

Within the tax-protected pension wrapper you can keep assets such as:

• UK and overseas stocks and shares

• Exchange traded funds (ETFs)

• Government bonds (gilts)

• Unit trusts/funds

• Investment trusts

• Insurance company funds

• Traded 

• Endowment policies

• Deposit accounts with banks and building societies

• Some NS&I products

• Commercial property

Just note that not all providers will provide access to every possible investment opportunity.

Some SIPPs will also offer one-stop funds to help you save for retirement, or managed portfolios - this can be helpful if you do not want to build a complicated investment portfolio yourself.

Can I invest in property through my SIPP?

You can invest in commercial property through your SIPP, although not all providers offer direct property investing as an option. 

If your provider allows it, you can buy the property through your pension and the pot will benefit from any increase in the property’s value, and will also receive any rent paid on it.

This is particularly useful if you run a business and need business premises.

You can buy your own premises through your SIPP, and then pay rent on it – the rent goes into your pension pot, so you ultimately benefit from it.

Provided that the rent charged is a fair market rate, this can be a very efficient solution for business owners.

You can’t directly buy residential property with your SIPP, but some SIPPs let you include residential property through certain collective investments, such as real estate investment trusts (REITs).

Learn more: SIPP vs ISA: which should you choose?

What charges will I pay with a SIPP?

You will need to pay certain charges to the SIPP provider.

However, all pension funds involve management fees, and generally SIPPs (being largely self-administered) charge lower fees than other types of pension.

SIPP charges are likely to include:

Platform fee

Your SIPP provider may charge a flat annual platform fee or a percentage of your investment.

Also called the ‘annual administration charge’, it may be up a few hundred pounds a year, but could be much less. Some providers don’t charge a platform fee.

Fund charges

Funds you hold inside your SIPP also charge a holding fee. These vary significantly by provider and fund type.

Actively managed funds tend to be more expensive than tracker funds because they cost more to run.

Dealing fees

There are usually fees to pay when you buy and sell shares within the fund (often £4 - £7). If you plan to do a lot of trading, this can bump up your costs.

Forex fees

If you buy equities in another currency, the platform may charge foreign exchange fees.

What are the different types of SIPPS?

There are two main types of SIPP available: low cost and full SIPPs.

Low-cost SIPPs

This is the cheapest option and you can start one from as little as £50 a month (or a lump sum), but the more you can pay in, the better.

Most SIPPs are run online with research and tools to guide savers.

You may not get access to the full range of investment options, but you can usually choose from a wide range of funds, ETFs and shares, which will be enough for most people.

Many will also offer ready-made portfolios if you don’t want to be fully hands-on or don’t feel confident choosing investments yourself.

Full SIPPs

A full SIPP offers a wider range of investments including property and specialist assets.

It generally comes with a certain level of investment support, helping you make decisions and administer certain transactions.

As such, a full SIPP charges higher fees, and so it is generally more suitable for those with larger pension funds.

How safe is a SIPP?

As with any kind of investment in the stock market, the value of assets held in your SIPP can fall and rise. However, over the long investment period, positive growth is the most likely outcome in most cases.

In the event of your SIPP provider company collapsing, you still have a number of protections.

Your provider only manages your assets and does not hold them, so these should still be safe.

If any of the banks or fund managers that hold your assets go bust, then the Financial Services Compensation Scheme (FSCS) will repay your losses up to a maximum of £85,000.

What happens to my SIPP when I die?

A SIPP is treated like any other defined contribution pension if you die with any of the pot unspent.

Your chosen beneficiary can inherit the remaining pot.

The tax treatment of your pension depends on when you die:

• If you die before you’re 75, the lump sum death benefit allowance (LSDBA) allows you to pass your pension to beneficiaries tax-free. The LSDBA for most people is £1,073,100.

• If you die after turning 75, your beneficiaries will pay income tax at their highest rate when they take money out of your pension.

Bear in mind that from April 2027, pensions will form part of your estate when you die and may be subject to inheritance tax (if the total value of your estate exceeds the tax-free allowance).

Find out more about what happens to pension pots when you die.

Should I transfer my final salary pension to a SIPP?

If you have a final salary (i.e. defined benefit) workplace pension from any of your jobs, you may be tempted to transfer it to a more flexible SIPP.

This essentially means trading a guaranteed income for a lump sum that you transfer into a personal pension as a SIPP that you manage yourself.

However, as this is a high-risk decision, you will need to consult a financial planner first, if your pension is valued at more than £30,000.

Sometimes this may be the right choice for you – often, it won’t be. 

Get expert financial advice

A SIPP gives you control over your retirement savings. It’s also an opportunity to combine multiple investment pots and tailor your investments to your own personal preferences.

However, it does mean taking responsibility for your pension and making investment decisions, so financial advice can ensure you make the right choices for you.

A financial planner can also help you to understand all the relevant rules and charges and give you the advice you need to really maximise your retirement savings.

Let Unbiased quickly match you with a financial adviser for expert financial advice to ensure your SIPP aligns with your long-term financial goals.