Best SIPP Providers Compared & Reviewed

One of the major benefits of putting money into a SIPP (Self-Invested Personal Pension) is that contributions come with tax relief. This is essentially a reward from the government for saving for retirement. Interested in learning more about SIPP tax relief? Here’s everything you need to know.

SIPP Tax Relief: How It Works

SIPP tax relief is a tax break for those who make contributions to a SIPP account. The way it works is that when you make a SIPP contribution, the government hands you back the tax you’ve already paid on that money.

The amount of tax relief you’re eligible for depends on the Income Tax band that you’re in. For basic-rate taxpayers, the amount of tax relief available is 20%. Meanwhile, for higher-rate and additional-rate taxpayers, the rates are 40% and 45% respectively.

It’s worth noting that not everyone is eligible to receive tax relief. To be eligible for tax relief, you must be a UK resident under the age of 75.

How To Claim SIPP Tax Relief

If you’re a basic-rate taxpayer, you don’t need to do anything to receive tax relief on a SIPP contribution. After a contribution, your tax relief will automatically be claimed by your pension provider and paid into your account.

If you are a higher-rate or additional-rate taxpayer, you will receive 20% tax relief automatically after making a contribution. You will then need to make a claim through your tax return to receive the full amount of tax relief you are entitled to.

If you don’t make this claim, you will only receive 20% tax relief.

Tax Relief Examples

Let’s say a basic-rate taxpayer makes a contribution of £800 into their SIPP account. In this scenario, the government will add in another £200 for the investor, taking the total contribution to £1,000. And the investor won’t have to do anything to receive the £200 bonus – it will automatically be paid into their account.

Now, let’s say a higher-rate taxpayer makes a contribution of £800 into their SIPP. In this scenario, the government will also add in £200 for the investor automatically.

However, on top of this, the investor will be able to claim back an additional 20% tax relief (£200) through their tax return. This means that their £1,000 contribution will only cost them £600.

SIPP Tax Relief Annual Allowances/Limits

When it comes to receiving tax relief, there is a limit to how much you can contribute to a SIPP every year. This is known as the pension Annual Allowance and it is currently £60,000 or 100% of your salary, whichever is lower.

So, for example, if your salary was £175,000, and you wanted to make a SIPP contribution of £75,000, you would only be eligible for tax relief on £60,000 of your £75,000 contribution.

What Are Carry Forward Rules?

There are ways to get around the Annual Allowance, however. One way to potentially contribute more than the Annual Allowance is to take advantage of ‘carry forward’ rules.

These allow you to carry forward any unused annual allowances from the previous three tax years. To do this, you must make the maximum allowable SIPP contribution in the current tax year.

You can then use unused annual allowances from the three previous tax years.

SIPP Tax Relief For High Earners

High earners face a Tapered Annual Allowance when it comes to SIPP tax relief.

The way this works is that if you have an ‘adjusted income’ of more than £260,000 per year, and a ‘threshold income’ of more than £200,000 per year, your annual allowance is tapered by £1 for every £2 you are over the adjusted income figure.

The tapering stops at an adjusted income of £360,000, however, meaning that if your adjusted income is higher than this, you will still have a pension allowance of £10,000.

Tax Relief Once You Take Your Pension

If you have already started taking an income from your SIPP, you can still pay into it. However, you may face the Money Purchase Annual Allowance (MPAA) instead of the standard pension Annual Allowance (whether the MPAA applies will depend on how you have accessed your pension).

The MPAA is designed to stop people from withdrawing pension savings and then paying them straight back into their account again (and gaining tax relief twice). Currently, the MPAA is £10,000.

How much can be taken out of a SIPP tax-free?
Currently, you can take 25% out of your SIPP tax-free when you turn 55 (57 from 2028).

When does tax relief get added to a SIPP?
Tax relief usually gets added to a SIPP within a few months of making a contribution.

How much of my SIPP is tax-free?
You can invest your entire SIPP tax-free. And when you turn 55 (57 from 2028), you can access 25% of your money tax-free.

SIPP TAX Relief FAQ

How do I avoid paying tax on my SIPP?
One way to avoid paying tax on your SIPP is to only withdraw a small amount every year in retirement so that your total income is under the Personal Allowance. By keeping your income under the Personal Allowance, you won’t have any tax to pay.

If you have a SIPP (Self-Invested Personal Pension), or you’re thinking about opening one, you may be wondering what happens to your SIPP when you die. After all, you could pass away before spending all your retirement savings. Below, we’re going to look at what happens to a SIPP upon death. Here’s everything you need to know.

What Happens To A SIPP On Death?

When you die, your SIPP can be passed on to beneficiaries of your choice. Your beneficiaries can normally choose to take the savings as a lump sum, draw an income from the SIPP, take ad hoc lump sum payments, or leave the SIPP invested and defer drawing until a later date.

Who Can Inherit My SIPP?

You can nominate whoever you like to receive your SIPP savings upon your death. This could be your spouse, children, grandchildren, friends, colleagues, a trust, or even a charity. You don’t have to leave it all to just one person or entity; you can split it up any way you like.

It’s important to nominate your SIPP beneficiaries while you are still alive, however (you can do this via your SIPP provider by completing an ‘expression of wishes’ form). This will ensure that, when you pass away, your SIPP is transferred to your beneficiaries smoothly.

SIPP Taxation Upon Death

SIPP taxation upon death depends on the age at which you die.

If you die before the age of 75, your beneficiaries won’t have to pay any tax on your SIPP savings at all, no matter whether they take the money as a lump sum or draw an income.

However, if you die when 75 or older, any withdrawals from the SIPP will be taxed as their income. In other words, they will pay Income Tax on the SIPP proceeds.

Note that if you die before the age of 75 and your SIPP funds are not ‘designated’ (transferred) to your beneficiaries within two years of your death, your beneficiaries will be required to pay Income Tax whenever they withdraw money from the SIPP in the same way they would be if you had died aged 75 or older. This is another reason it’s important to nominate your SIPP beneficiaries while you are still alive.

If you nominate a trust as a beneficiary, proceeds will be paid as a lump sum, and the trust will pay 45% tax on them.

Does My SIPP Form Part Of My Estate For IHT Purposes?

One major benefit of saving and investing within a SIPP (or any other kind of pension account) is that the money is not viewed as part of your estate. This means that it is not subject to Inheritance Tax (IHT) when you die. This is one big advantage that SIPPs have over Stocks and Shares ISAs and General Investment Accounts (GIAs).

What Happens To Property In A SIPP Upon Death?

If you hold commercial property in your SIPP, your beneficiaries have several options. The property could be sold with the proceeds either reinvested or used to provide benefits. Or, the property could be retained and the rental income used to provide benefits to the beneficiaries. Alternatively, the beneficiaries could buy the property from the SIPP and hold it personally, with the SIPP receiving cash in exchange.

What Happens When A SIPP Beneficiary Dies?

If a SIPP beneficiary dies, your SIPP can be passed down to their beneficiaries in the same way that you passed it down to them. Your beneficiary simply needs to nominate their own beneficiary via an ‘expression of wishes’ form. This can happen from beneficiary to beneficiary until all the savings are gone.

If your beneficiary dies before the age of 75, their beneficiaries will be able to access the savings tax-free. However, if your beneficiary dies after the age of 75, their beneficiaries will have to pay Income Tax on the proceeds.

When you compare the performance of these private pension funds it’s important to remember that historical results are absolutely not indicative of future performance. 

Managed private pension performance is heavily correlated to how well the global economy is performing. So if the overall stock markets are performing well, so will your pension. But, if the economy is in recession or a “bear market” the performance of your pension will go down.

The performance of your pension fund over its lifetime can make a great deal of difference to the size of your final pension pot, and in turn to the income and capital that you will be able to call on when you retire.

The performance of individual funds can vary greatly for example Sottish Equitable’s Technology ARC Pension fund has grown at an annualised rate of 23.16% over the last ten years, according to Morningstar data.

Whilst, the Zurich JP Morgan New Europe Pension fund has lost -36.58% over the same period.

These kinds of divergences mean the choice of pension fund could be crucial to the performance or growth of your pension pot. But what should an investor be looking for in a pension fund.

But first, what is a pension fund?

A pension fund is a tax-efficient savings plan designed to grow over the long term. Investors put money into their pensions over their working lifetime, in expectation of creating a pot of investments and cash that they can draw on in later life.

Pension funds are often made up of a portfolio of assets that can include stocks and shares bonds other funds and commercial property.

Pension funds are often managed with long-term growth in mind, but they can also be thematic focusing on say European smaller companies, global technology or government bonds.

That means that investors are faced with making both an asset allocation choice and a choice about the manager /pension fund they will invest in.

According to data from fund research specialists Morningstar there are 1431 pension funds available to UK investors that focus on Global Equities.

Funds in this sector have enjoyed some of the best performance over the last 10- years with 15 funds producing returns of 14 % or greater. Five of these funds (all of which are managed by Scottish Equitable) returned more than 22% in that time frame.

By comparison, there are 160 funds focusing on Global Fixed Income Securities, even the best performer among this cohort, which again is a fund managed by Scottish Equitable, the Overseas Corporate Bond Tracker, returned just +3.71% over the last decade.

Best-performing individual pension funds

Out of just over 14,000 pension funds in the Morningstar database it’s Scottish Equitable’s Technology ARC Pension fund that takes the top spot with an impressive 23.16% of annulaised returns since 2013.

The fund focuses on large-cap growth stocks and was established back in November 2011, it manages just under £590 million, as of March 31st 2023.

Away from the Scottish Equitable stable FIL Inurance’s Global Technology Fund returned an annualised 20.18% in the last decade, whilst AXA Framlington’s Global Tech ZP Pension Fund has returned an annualised 18.39%  over the last 10 years.

The best performing pensions funds over the last 10 years

Source: Morningstar data

If we look at the database for the performance of pension funds over 5 years we see little change, with technology-focused funds occupying the top spots with a 5-year returns of just over 20%.

Best-performing pension funds by asset class

Global Technology funds have been the best-performing asset class over the last 10 years They are followed by North American Equity funds and Japanese Equities.

However, there is quite a big gap between the best-performing Japanese equity fund, the Sanlam Invesco Perpetual Japan Smaller Companies Pension Fund, and the other 338 funds in the sector.

The returns among North American equity funds are far more evenly distributed with the range of 10-year returns among the top 20 funds in a  spread between 15.38% and 17.08%.

Equity funds seem to have outperformed their fixed-income peers over the last 10 years.

For example, the Aviva Pension Capital International Global High Income OpportunitiesFund is the best performer, among global high-yield funds but it has only returned an annualised  6.21% in that time frame.

The top 10 Global High Yield Pension Funds over the last 10 years

The best European Equity (ex the UK) funds have produced ten year returns of 12.96% the worst performer among the 683 funds in this class delivered just 1.94%.

The Top Ten European Equity (Ex UK) Pension Funds over the last 10 years

Source: Morningstar data

The best commodity and energy-focused funds have returned between 5.00% and 7.61% per annum over the last decade, whilst the best property-centric pension funds have generated 9.06%

The Top Ten Commodity/Energy Pension Funds over the last 10 years

Source: Morningstar data

Best performing pension fund managers

The best performing pension managers over the last 10 years are those that have had exposure to global technology and or North Amertican equities.

Simply because of the growth in tech and US equity markets for example the Nasdaq 100 index is up by 377% since September 2013.

As we noted earlier Scottish Equitable (which is owned by Dutch insurer Aegon) manages several top-performing technology funds.

Overall the firm manages 1385 dedicated pension funds 600 of which have returned at least an annualised 1.75% over the last decade.

Other managers that were well represented in the list of best-performing pension funds across all asset classes include

AXA Framlington in combination with both Zurich and Phoenix Wealth

OMR Quitler and OMR Janus Henderson.

UK insurer Aviva, who have funds managed in conjunction with Baillie Gifford, JP Morgan, Investec, and AXA Framlington, as well as under its own banner.

Key points to consider when choosing pension funds

Of course this brings us to key points about fund and manager selection.

Firstly, previous performance is no guarantee of future returns and secondly having a good manager but the worst asset allocation is not likely to be a successful route to long-term capital growth.

Consistency of returns and the effects of compounding will help to build your pension pot over time. Trying to identify which managers and funds are likely to deliver that over the next 25 to thirty years is nigh on impossible.

So investors need to have pensions that allow flexibility within their fund selection.

Picking funds is also not made any easier by inconsistent data and a variety of methods that are used to measure fund performance and risk metrics, and the periods over which they are tracked, by the principal fund data sites.

Screening tools will be useful for compiling a short list of funds and managers but you will likely need to dig down further into each manager and fund before you can make your fund selection and asset allocation decisions.