A SIPP Is a Self-Invested Personal Pension, but Are They Safe?

Mark Benson

Mark Benson

Money Savings Advice A SIPP Is a Self-Invested Personal Pension, but Are They Safe

A SIPP is a Self-Invested Personal Pension, something that has become extremely popular in recent years. For many people, it is the flexibility of their SIPP, which is the main attraction.

If you have a SIPP, or perhaps you are looking to open one, we will cover many of the more frequently asked questions below.

Just as it is important to take advice about transferring from a defined benefit scheme, it is just as important to take advice about setting up a SIPP. You need to ensure you are taking out the right pension option for your particular situation.

You also need to know what you are getting yourself into - mistakes can prove costly!

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What Is a SIPP?

A SIPP is a Self-Invested Personal Pension, which is best described as a defined contribution “money purchase” pension scheme. Unlike final salary pension schemes, where your pension payments are linked to your final salary, there are no such guarantees when it comes to SIPPs.

Whatever you have in your fund at retirement is your retirement pot. However, many people are attracted to the flexibility of SIPPs and the ability to take control of their pension investments.

What Is a Defined Contribution Scheme?

There are two main types of pension, defined benefit, and defined contribution. A defined contribution pension scheme is based on contributions and performance of investments. There is no defined benefit. In effect, a SIPP is a money purchase pension scheme, which means that the value is literally the fund for retirement.

Can I Transfer Other Pension Scheme Funds Into a SIPP?

In theory, there is a relatively large list of different types of pension funds that you can transfer into a SIPP. These include:-

  • Retirement annuity plans
  • Personal pension plans
  • Pensions already in drawdown
  • SIPPs
  • Executive pension plans
  • Freestanding additional voluntary contributions
  • SASS schemes, Small Self-Administered Schemes
  • Stakeholder pension plans
  • Occupational money purchase plans
  • Recognised overseas pension schemes

You will also be able to transfer defined benefit scheme funds, so long as advice has been sought as to whether this is the right move.

A note of caution, not all SIPP providers will allow all of the different types of pension to be transferred in. It can often be at the discretion of your pension fund administrators/trustees.

How Do I Drawdown Pension Income From My SIPP?

Unless there are serious medical issues, it is unlikely that you would be able to access SIPP funds until you are 55. Upon hitting 55, there are a number of options:-

  • Leave SIPP intact until you require funds
  • Use all/partial SIPP funds to acquire guaranteed income annuity
  • Withdraw 25% tax-free with regular taxed income afterward
  • Withdraw as lump sums as and when required - tax rates will vary
  • Take all of your pension fund, 25% tax-free with the rest taxed at your prevailing rate
  • Mix-and-match income with other pension arrangements

In years gone by, upon retirement, you were forced to acquire an annuity that gives you a regular guaranteed income. Unfortunately, annuity rates have dropped over the last 20 years or so, which prompted the change in government regulations.

There is no obligation to acquire an annuity with SIPP funds on retirement. As you can see from the above, there are numerous options that you can mix and match to address your situation.

Can I Pass On My SIPP Funds Upon Death?

Unlike some personal pension arrangements, where funding is reduced for the beneficiary, it is simply a case of passing on your SIPP funds upon death. Therefore, it is important to ensure that your Expression of Wishes instruction, held with your SIPP administrator, is up-to-date.

Do I Have to Be in Employment to Take Out a SIPP?

No. While many pension fund arrangements have various restrictions regarding employment, the same cannot be said for SIPPs. You will still qualify for tax relief on all SIPP contributions up to £2880 each year. There will be a tax charge if you go above and beyond the net contribution allowance.

Is There Tax Relief on SIPP Income?

Yes. Interest/dividends are paid gross into a SIPP, although there are some investments that are traditionally paid net of tax. Under these circumstances, it is the role of the administrators/trustee of the SIPP to reclaim tax. This would then be allocated to the SIPP bank account and become part of the pension fund.

Is There Tax Relief on SIPP Contributions?

Yes. Tax relief of 20% (the basic rate of tax) will be attributed to all SIPP contributions with funds collected by the administrators/trustees. Higher rate taxpayers will need to apply for additional tax relief, which will be paid directly to them, as opposed to directly to the SIPP.

It is important to take tax relief into consideration when looking at your SIPP investments and future targets. These ongoing tax rebates can make a huge difference in the size of your fund and long-term performance!

How Much Can I Contribute to My SIPP Each Year?

In the 2020/2021 tax year, the annual allowance for tax relief for SIPP contributions is £40,000. It is important to speak with your financial adviser to calculate the most appropriate level of contributions for your situation.

There are other issues to take into consideration, such as the lifetime allowances and annual allowance for tax relief, once you have started taking pension payments from the SIPP.

Money Savings Advice Tip

Sadly where there is money involved there are unsavoury people who look to take advantage. If you feel you have been the victim of pension fraud and have lost money from your pension then we advise you to speak to a professional who can manage your claim properly.

Can I Withdraw Money From My SIPP Before I Am 55?

The current minimum age for withdrawing pension funds in the UK is 55 - rising to 57 from 2028. So, the simple answer is no. You could not withdraw funds from your SIPP prior to your 55th birthday - unless under extenuating medical circumstances.

If you are approached by unsolicited parties offering advice and guidance on your SIPP, be very careful. Since January 2019, it has been illegal to cold call individuals regarding their pension fund assets.

Is a SIPP Suitable for My Scenario?

It is very important to take financial advice before committing yourself to any pension fund arrangement. Yes, your situation will change over the years, but you need to take the most appropriate action for your current scenario. Many people wax lyrical about the flexibility of SIPPs and control over investments.


There is no doubt that SIPPs are now extremely popular, in light of recent pension regulatory changes. There is now a greater emphasis on individuals “looking after themselves” with the scope for SIPP investments edging ever wider.

Any change in allowable investment activity must be balanced against the key matter of maintaining pension fund balances going forward.

Therefore, it is unlikely that direct investment in high-risk assets will ever be allowed. The more money you have to look after yourself, the less of a burden you are on the state.

How Can Money Savings Advice Help You With Making a Mis-Sold Pension Claim?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Financial Claims management companies. They have already helped thousands of people claim compensation for a mis-sold pension and they can do the same for you.

Choosing an independent claims management company means they won’t proceed with a claim unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these claim management companies who can help you make a compensation claim, then click on the below and answer the very simple questions.

Money Savings Advice Author Mark Benson

Mark Benson

Mark has been writing professionally for over ten years for the financial sector. Having started in the financial world as a stock-broker in central London and then moving to equities trader Mark is one of our senior financial writers who has a vast knowledge of multiple financial sectors.

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