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SIPP vs personal pension: what is the difference?

4 mins read
by Unbiased Team
Last updated Friday, May 10, 2024

We explore the differences between self-invested personal pensions (SIPPs) and personal pensions to clarify which option best aligns with your investment goals and retirement objectives.


  • SIPPs offer greater control and flexibility over investments, including asset options like stocks, bonds, and exchange-traded funds (ETFs).

  • Personal pensions provide simplicity and convenience, with investments managed by the pension provider.

  • SIPPs and personal pensions offer tax-free growth potential, but returns may vary based on market performance.

  • Let Unbiased connect you with a qualified financial adviser who can assist you with your investment and retirement goals.

What is a SIPP?

A  self-invested personal pension (SIPP) is a retirement savings vehicle that gives individuals greater control and flexibility over their investments.

Unlike traditional pension plans, which often limit investment options to a selection of funds, a SIPP allows investors to choose from various assets, including stocks, bonds, mutual funds, commercial property, and exchange-traded funds (ETFs).

A key feature of a SIPP is the ability to tailor your investment portfolio to align with your unique financial goals and risk tolerance.

Whether you're seeking long-term growth, income generation, or capital preservation, a SIPP offers the flexibility to design a personalised investment strategy that suits your needs.

With a SIPP, you can make tax-free contributions of up to 100% of your income each tax year, up to a maximum of £60,000, which includes personal contributions, employer contributions, and tax relief.

Exceeding the £60,000 limit within a financial year may result in a tax charge.

What is a personal pension?

A personal pension is a retirement savings plan offered by pension providers and employers.

Personal pensions typically offer a more limited selection of funds managed by the pension provider and are designed to provide individuals with a simple way to save for retirement. 

Similar to SIPPs, contributions to personal pensions also benefit from tax relief.

The pension annual allowance sets the ceiling for how much you can contribute to your pension in a single year and still qualify for tax relief. This is capped at £60,000 (or 100% of your annual income).

Exceeding this amount means forfeiting tax relief on the excess and incurring a tax charge.

Personal pension vs SIPP: how do they compare?

Let's compare SIPPs and personal pensions below.

  • Range of investments: A SIPP gives you access to diverse assets and can include passive and actively managed investments. Personal pensions typically offer a more limited selection of funds managed by the pension provider.

  • Price: SIPPs may have higher fees due to their flexibility and active management, so investors should weigh the costs against their goals.

  • Ease of management: SIPPs demand more hands-on management, with investors responsible for selecting and monitoring investments. Personal pensions offer a simpler, provider-managed approach.

  • Potential returns: SIPPs and personal pensions offer tax-free growth, but returns vary based on investments and market performance. Investment returns can vary, so consider your risk tolerance and investment goals carefully.

SIPP or personal pension: which is better for me?

When choosing between a SIPP and a personal pension plan, which option is right for you? 

Ultimately, it depends on your individual circumstances, investment goals, and risk tolerance.

If you're comfortable managing your investments and want a wider range of choices, a SIPP could be the most suitable option. 

For example, a seasoned investor may opt for a SIPP as they want to hand-pick their investments and actively manage their portfolio to maximise returns.

With a SIPP, they can invest in a diverse range of assets and tailor their strategy to suit their financial goals.

If you prefer a hands-off approach and value simplicity, a personal pension might be more suitable.

For instance, a busy professional may choose a personal pension because they prefer a set-and-forget approach to retirement planning.

With a personal pension, the pension provider manages their investments. This allows them to focus on other things without worrying about actively managing their retirement savings.

Employers can contribute to SIPPs and personal pensions, so if you're eligible for employer contributions, consider that when making your decision.

Can I change from a SIPP to a personal pension and vice versa?

Yes, you can transfer from a SIPP to a personal pension or vice versa. You can also hold both a SIPP and a personal pension simultaneously. 

Switching from a SIPP to a pension fund offers simplicity and convenience since the pension provider manages investments, but it limits investment choices.

Moving from a pension fund to a SIPP gives you greater control and flexibility over investments, potentially yielding higher returns. However, it demands active management and may incur higher fees.

How to transfer a SIPP to a personal pension and vice versa

Transferring between a SIPP and a personal pension is straightforward, and pension providers and financial institutions facilitate the process.

This involves contacting the provider of the pension type you wish to transfer to and requesting the necessary transfer forms. 

The same can be said for transferring your personal pension to a SIPP.

Transferring pensions can take time, and there may be administrative fees involved. Getting financial advice can help avoid potentially losing any benefits along the way.

Seek expert financial advice

Ultimately, your choice between a SIPP and a personal pension plan will depend on your personal preferences, investment goals, and risk tolerance.

SIPPs offer flexibility and control, while personal pensions provide simplicity, so consider your comfort level with investment management and the level of control you desire.

By understanding the key differences between a personal pension and SIPP, you can make an informed decision that will set you on the path to a comfortable retirement.

Let Unbiased match you with a pension adviser for expert financial advice to ensure your retirement plans align with your long-term financial goals.

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Unbiased Team
Our team of writers, who have decades of experience writing about personal finance, including investing, retirement and pensions, are here to help you find out what you must know about life’s biggest financial decisions.