SIPP providers offer a pension plan where you choose exactly what investments to include, rather than an investment manager. This gives you far more control over how your money is invested for retirement compared to a traditionally managed pension.
Best SIPP providers compared and reviewed
You can use our comparison table of what we think are the best SIPP provider account fees, minimum deposits, share and fund dealing commissions and if they offer international investments and junior accounts. We have ranked, compared and reviewed some of the best SIPP providers and accounts in the UK that are regulated by the FCA. All investing carries risk.
AJ Bell: Best SIPP provider 2023
AJ Bell offers the cheapest SIPP account when you compare them against providers that charge a percentage of your portfolio value. You can invest in a wide range of investments, including stocks in more than 20 markets, over 2,000 funds, ETFs, and bonds.
AJ Bell SIPP fees are 0.25% of the value of your portfolio. Share account fees are capped at £10 a month. Fees on funds reduce to 0.1% between £250k and £500, and there is no charge above £500k. Dealing costs are £1.50 for funds and £9.95 for shares but drop to £4.95 where there were 10 or more online share deals in the previous month.
- Up to £500 cashback: Switch your SIPP to AJ Bell and they will pay up to £35 per investment and £100 in exit fees as cash back to cover your costs up to £500.
- £100 gift vouchers: If you refer a friend to AJ Bell that opens an ISA or SIPP with more than £10,000 you both get £100 of One4All gift vouchers.
- ✔️Low SIPP account fees of 0.25% & share dealing commission
- ✔️Wide range of shares, bonds and funds
- ✔️Ability to add a Junior SIPP for your children
- ❌High phone dealing charges
Hargreaves Lansdown: Widest range of SIPP investment options
We have ranked Hargreaves Lansdown as the best SIPP provider in our 2022 Awards. The main advantage of Hargreaves Lansdown’s SIPP is that it offers access to a vast range of investments. Investors have access to domestic and international equities, over 3,000 funds, bonds, as well as plenty of research and investment tools.
- ✔️Widest range of shares, bonds and funds to invest in.
- ✔️Get started with as little as £100 or a £25 regular investment
- ✔️Share fees capped at £200
- ✔️Excellent research & data to help you choose what to invest in
- ❌Can be expensive for large fund portfolios
Interactive Investor: Excellent fixed-fee SIPP investing account
One advantage of Interactive Investor’s SIPP is that it offers a flat-fee structure. This means that annual account charges do not increase as your SIPP grows in size. This structure can help those with larger SIPP portfolios save on fees.
Interactive Investor’s SIPP costs 12.99 a month for new customers, but if you already have a II shares dealing account you can add a SIPP for £10 per month instead of £12.99. Dealing commissions are a free trade every month, then UK Shares and Funds, US Shares charged £7.99 or upgrade to a £19.99 “Super Investor” account 2 free monthly trades and deal for £3.99. Regular investing is free.
- ✔️Flat account fee of £12.99 per month
- ✔️£1 minimum deposit makes it easy to get started
- ✔️Fixed SIPP account fee that does not increase with your investments
- ✔️Joint account options
- ❌Fixed fee expensive for very small accounts below £1,000
IG’s SIPP account lets you invest in over 13,000 UK and US shares, funds and investment trusts. Or if you can buy into an IG Smart Portfolios are expertly managed, broadly diversified portfolios with exposure to many global markets, such as fixed income and equity, along with alternative investments like gold and property.
- ✔️Fixed annual costs that do not grow with your portfolio
- ✔️Wide range of UK and US shares
- ✔️Pre-made SIPP portfolios
- ❌Also provides access to high risk investment products
Bestinvest: Good for SIPP investment advice and low costs
Bestinvest has combined low-cost online investing and share dealing with personalised expert advice to help clients choose the right investments for their portfolio. A good choice for large long-term investors.
Bestinvest SIPP fes are 0.2% for holding ready-made portfolios, above £500,000 it reduces to 0.1%. For other investments, the account fee is 0.4% up to £250k. Dealing commissions £4.95 per online share trade, fund dealing is free.
- ✔️SIPP investment advice and buy/sell recommendations
- ✔️Low minimum deposit of £1
- ✔️Very low account fees from 0.2% on pre-made portfolios
- ❌No US shares
We have chosen what we think are the best SIPP accounts based on:
- over 17,000 votes in our annual awards
- our own experiences testing the SIPP accounts with real money
- an in-depth comparison of the features that make them stand out compared to alternative SIPPs.
- interviews with the SIPP provider CEOs and senior management
SIPP providers offer government-approved tax-efficient self-invested personal pensions where you choose exactly what shares, funds, ETFs, and bonds you invest in for your retirement and give you complete control over your pension savings.
In this episode of Good Money Guide TV we talk to Rebecca O’Keeffe from Interactive Investor and discuss the Pros and Cons of investing in SIPPs. We cover, who they are good for, what Interactive Investors offers through their SIPP account and look at the risks and rewards of investing in SIPPs.
How to choose a SIPP provider
These are the main things to consider when deciding which SIPP provider to use:
- Account fee – the annual charges of having a SIPP account
- Minimum deposit – the smallest amount of money you can deposit initially to open a SIPP account
- Share dealing fee – the standard fee for buying and selling UK shares (this may reduce for frequent traders)
- Fund dealing fee – the cost for buying and selling funds (this may reduce for multiple monthly deals)
- International shares – does the SIPP account give you access to US and other international stock markets?
- Junior SIPPs – can you also open an account for your children to help them invest for their retirement?
SIPP accounts are suitable for those confident in managing and investing their pension savings as a self-invested personal pension (SIPP) can save money over a managed pension and can let you increase the value of your retirement savings faster if you invest well.
SIPPs are quite similar to personal pensions, which are pensions that you arrange yourself. However, SIPPs generally offer more investment options than personal pensions. Most SIPPs enable you to invest in UK and international shares, funds, investment trusts, exchange-traded funds (ETFs), bonds, and more. Where are personal pensions limit your investment options to managed funds and pre-made portfolios.
Contributing to a SIPP can be a very effective way of saving for retirement. When you save into a SIPP, you receive tax relief. This is essentially a reward from the government for putting money away for retirement. Additionally, all investment gains and income within a SIPP are tax-free.
SIPPs are an investment type suited to a range of people including business owners, those who don’t have workplace pensions, those who wish to consolidate past pensions, and those looking for more control over their pension savings. They can be particularly effective for those on higher incomes, who may wish to make extra pension contributions and those who are self-employed, who may be able to offset SIPP contributions against their tax bill.
SIPPs are offered by many providers. However, not all SIPPs are created equal. Some SIPPs offer more investment choices than others while some SIPP accounts offer lower fees than others. Ultimately, the best SIPP for you will depend on your personal requirements.
Some SIPP accounts and providers offer incentives like cashback when you transfer your SIPP.
Different types of SIPP
There are two different type os SIPP and which one you choose depends on how you want to invest for your retirement
- Low-cost SIPPs: The low-cost SIPP (also known as SIPP lite or DIY SIPP) typically charges lower fees than a full SIPP. This is because it is ‘execution-only’, which means that the provider offers a platform for you to choose and manage your investments, with generally fewer investment choices and often no investment advice. Low-cost SIPPs offer fewer asset classes than their full cost counterpart and typically include listed equities, Exchange Traded Funds (ETFs) and bonds, but not unlisted equity or commercial property. Some may just offer a limited number of readymade funds. Providers do not offer advice, leaving the investor to make their choices on their own.
- Full-SIPPs: Full SIPPs offer the widest range of investment choices, including unlisted stocks and commercial property. Depending on the provider, you may also have access to an investment adviser with a full SIPP. The advice – and the broader investment options – mean that full SIPP fees are generally higher than lite SIPPs. When thinking about what to include in your SIPP, remember that you will need to maintain and manage your portfolio, so your financial circumstances and expectations are important. Think about your level of investment experience, financial knowledge and confidence. Consider whether the provider offers a smaller fixed range of investments or a wider, more flexible portfolio.
Investments that can be held in a SIPP
The range of investment options will vary across providers, but typically investors can choose from:
- Individual stocks – company shares registered on a stock exchange
- Bonds – loans made to companies or government
- Unit trusts – open-ended fund which pools investment with others
- Investment trusts – a closed ended investment vehicle where your money is pooled with other investors
- Exchange traded funds – These are basket of stocks that trade on an exchange.
- Deposit accounts with banks and building societies – these provide fixed returns on savings accounts
- Commercial property – investment in office buildings, shops and factories
SIPP charges & fees to look out for
Value for money is more important than cost, but clearly excessive charges are a danger to savings. SIPP costs to look out for include:
- A set up charge. Not all providers impose this fee and the amount varies across the market.
- An admin fee is the annual charge to cover running the SIPP. Again this varies and investors should compare the market before investing.
- Dealing charges apply to the buying and selling of assets. The more active an investor you are, the higher these will be.
- Transfer charges may be applied if you want to bring in additional pension plans.
SIPP Contribution Limits
You can pay 100% of your earnings into a pension in a year and – under current legislation – receive tax relief of up to 40% on the first £40,000 paid in (the annual allowance). For those earning more than £150,000, the annual allowance is reduced by £1 for every £2 earnt over the £150k threshold until the £10,000 limit is met.
There is also a lifetime allowance for total pension savings above £1,073,100, after which contributions will be taxed at 25% (55% for lump sums). The Lifetime Allowance (LTA) is the total amount of money you can build up in your pension accounts while still enjoying full tax benefits. If you go over the Lifetime Allowance, you will pay a tax charge on the excess whenever you take income or withdraw a lump sum from your pension, or reach the age of 75 without having taken any benefits. The Lifetime Allowance is adjusted each year in line with inflation. For the 2021/22 tax year, it is £1,073,100.
SIPP tax relief
Yes. SIPPs are free from capital gains tax and income tax, but investors pay stamp duty when they sell shares.
You also benefit from tax relief is paid on your pension contributions at the highest rate of income tax you pay. Basic-rate taxpayers receive 20% tax relief, meaning that an £800 contribution is topped up to £1,000 by the government, while higher-rate taxpayers and additional-rate taxpayers can claim 40% and 45% tax relief respectively through their tax returns. In Scotland, income tax rates are different, so tax relief is applied differently.
If you do not have any taxable earnings, you can still pay up to £2,880 into your SIPP each tax year. This will be topped up to £3,600 after tax relief. With a Junior SIPP, contributions are subject to 20% tax relief.
When you put your SIPP into drawdown, you keep the majority of your pension invested, while making flexible withdrawals for income.
You can move your SIPP into drawdown when you turn 55. Once in drawdown, you can take up to 25% of your SIPP as a tax-free lump sum. You can then make withdrawals from the remainder of your pension balance that can be used for retirement income. These will be taxed at your normal rate.
With pension drawdown, you generally have a lot of flexibility. You have flexibility over the amounts you withdraw and the timing of the withdrawals. Additionally, you are not locked into a drawdown for life. At any time, you can use your pension savings to buy an alternative retirement income product such as an annuity.
To set up a SIPP drawdown, you need to ask your SIPP provider to move your pension into drawdown mode. Normally, you have to complete a pension drawdown application form.
Some SIPP providers charge annual drawdown fees. Providers that currently charge for drawdowns include Aegon, AJ Bell Youinvest, Halifax, Interactive Investor, and the Share Centre. SIPP providers that do not currently charge annual fees for drawdown include Hargreaves Lansdown, Vanguard, and Fidelity.
Advantages of investing in a SIPP are:
- Contributions come with tax relief.
- Investment gains and income are tax-free.
- There is a generous annual allowance.
- You have control over your retirement savings.
- You generally have a wide range of investment options to choose from.
- You can transfer old pensions into your account.
Disadvantages of investing in a SIPP are:
- You cannot access your money before the age of 55.
- When you turn 55, you can only withdraw 25% of your SIPP tax-free.
- There is a limit to the amount of tax relief you can receive.
- You are responsible for managing your retirement savings.
SIPPs versus Cash ISAs
Compared to a Cash ISA, the main advantages of a SIPP are that contributions come with tax relief, you can invest your money in growth assets, and you can potentially contribute more than the annual ISA allowance of £20,000. The main disadvantages of a SIPP versus a Cash ISA are that you cannot access your money until you turn 55 and at age 55, you can only withdraw 25% tax-free. With a Cash ISA, you can withdraw your money at any time tax-free.
Compared to a Stocks & Shares ISA, the main advantages of a SIPP are that contributions come with tax relief and you can potentially contribute more than the annual ISA allowance of £20,000. The main disadvantages of a SIPP versus a Stocks & Shares ISA are that you cannot access your money until you turn 55 and at age 55, you can only withdraw 25% tax-free. With a Stocks & Shares ISA, you can withdraw your money at any time tax-free.
SIPPs versus Lifetime ISAs
Compared to a Lifetime ISA, the main advantages of a SIPP are that contributions come with tax relief, you can potentially contribute more than the £4,000 Lifetime ISA allowance, and you can access your money at 55 (versus 60 or when you buy your first property for a Lifetime ISA). The main disadvantages of a SIPP versus a Lifetime ISA is that at age 55, you can only withdraw 25% tax-free. With a Lifetime ISA, you can withdraw all your money tax-free at 60 or when you buy your first property.
SIPPs versus general investing accounts
Compared to a General Investing Account, the main advantages of a SIPP are that contributions come with tax relief and that all investment gains and income are tax-free. The main disadvantages of a SIPP versus a General Investing Account are that you cannot access your money until you turn 55 and at age 55, you can only withdraw 25% tax-free. With a General Investment Account, you can access your money at any time.
SIPPs versus private pensions
Compared to a normal or private pension, the main advantages of a SIPP are that you have more investment options. The main disadvantage of a SIPP against a normal pension is that you are responsible for managing your own money.
Some SIPP accounts and providers offer incentives like cashback when you transfer your SIPP.
Low-cost SIPPs versus regular SIPPs
Low-cost SIPP pensions are do-it-yourself (DIY) pension accounts that have low fees. They are suited to those who are looking to minimise pension fees and charges.
Like regular SIPPs where you can also invest in commercial property and private companies, low-cost SIPPs offer tax relief and investment gains and income within the account are tax-free. One downside to low-cost SIPPs, however, is that they often offer fewer investment options than regular SIPPs.
SIPPs versus robo-advisors (digital wealth managers)
It is early days for the digital wealth management market but robo-advice pensions can offer more support to savers who want some control but are unsure of what to invest in. Conducted exclusively online, these are called SIPPs, but they are actually more heavily managed by the providers than traditional pension plans. Typically, robo advisors rebalance portfolios, make investment decisions and offer more advice, rather than leaving savers to their own devices. These may suit first-time SIPP investors not yet ready to make investment decisions.
SIPP Provider FAQs:
AJ Bell won our award for best SIPP account in our 2022 awards.
The best SIPP for beginners is Hargreaves Lansdown, they offer one of the best apps on the market and provide stock research and analysis on the most heavily traded stocks in the UK and US. Hargreaves Lansdown is also good for beginners because they are quite simple to use and have an excellent reputation for customer support from their Bristol based offices.
They may be a little more expensive that some of the other platforms, but you certainly get what you pay for.
Some SIPP accounts are better suited to beginners than others. Generally speaking, beginner investors require a SIPP that is easy to use, cost-effective, and offers access to products that are well suited to beginners such as ready-made portfolios.
So, if you are a complete beginner to SIPP investing and are not confident enough to choose what individual stocks and shares you want to own in the long term. A private pension may be more appropriate. One private pension account (which is not actually a SIPP because you can’t buy individual shares) that is well suited to beginners is Wealthify. Wealthify is a robo advisor (or digital wealth manager) that offers a managed pension product. With Wealthify, you choose an investment style based on your risk tolerance. One advantage of Wealthify is that the minimum investment is just £50. One downside, however, is that there are only a few investment options to choose from.
Interactive Investor is the best SIPP for buying funds because of the flat fee. Both Bestinvest and Hargreaves Lansdown do not charge for buying and selling funds, but fees are high at 0.4% on the first £250,000 in your SIPP portfolio. The only downside of Interactive Investor is that you pay £7.99 for each fund trade, but you can reduce this to £3.99 by upgrading to a Super Investor for £19.99 a month which still works out cheaper than paying 0.4% on your portfolio if you have around £250k in invested in funds.
If you do not want to invest in shares and only want to invest in funds, then the cheapest SIPP for for funds and ETFs, is Vanguard who is one of the cheapest fund SIPP providers. Its SIPP has a low account fee of just 0.15% per year, capped at £375, investors also have to pay fund management costs of around 0.20% per year on average. But, your choices are limited to Vanguard funds, which makes the account more of a personal private pension than a SIPP account with complete control and flexibility.
Interactive Investor offers the most investment options in the UK SIPP markets. With II you can invest more than 40,000 domestic and international shares, ETFs, bonds and over 3,000 funds (AJ Bell Youinvest has 2,000 and HL offers 2,500 funds)
AJ Bell Youinvest is the cheapest SIPP as their account fee starts at 0.25% compared to Hargreaves Lansdown’s 0.45%. However, Bestinvest charges the lowest SIPP account fee (0.2%) if you are investing in ready-made portfolios. But, for other investments like shares, ETFs and investment trusts, the basic account fee starts at 0.4%. So in actual fact, if you treat a SIPP as it is intended where you choose exactly the shares and funds you buy and sell in it, AJ Bell Youinvest has the cheapest annual charges which are capped at £10 a month for shares.
For those with large pension accounts, Interactive Investor’s SIPP can be very cost-effective. This SIPP offers a flat-fee structure meaning that annual account charges do not get bigger as your SIPP grows in size. Fees for this SIPP start at £19.99 per month.
The cheapest SIPP for you will depend on some variables, including the types of assets you wish to invest in (i.e. shares vs funds), the number of trades you wish to make, and the size of your account.
Strictly speaking Interactive Brokers has the lowest fees for buying and selling shares as they charge 0.05% of the value of shares being bought or sold and also have very low account fees. But, they have a limited amount of research and analysis on UK shares and are also HQ’d in the US, although they do have an office in the UK. So, despite costing a little more to buy and sell shares we rank Hargreaves Lansdown as the best SIPP account for buying shares as fees reduce the more you trade and they provide the most comprehensive set of tools for analysing the best shares to buy.
We rank Hargreaves Lansdown as the best SIPP for buying US stocks as they offer an excellent research platform for choosing which US stocks to buy. International investing also falls under their standard dealing fees which are £11.95 per trade, which reduces to £8.95 if you do over ten deals, or £5.95 if you are buying and selling shares more than 20 times a month. Technically Interactive Brokes has the lowest fees for buying international shares in a SIPP, as the minimum charge per trade is £1 and the FX conversion rate is as low as 0.2%, but, they are online only and do not have the customer service in the UK or the research portal that Hargreaves Lansdown clients have access to.
Hargreaves Lansdown has the best SIPP platform for those that want to use their SIPP account to make their investing decisions. Whislt, Interactive Investors, Bestinvest and AJ Bell Youinvest may be cheaper, they do not offer anywhere near as comprehensive set of data, research and analysis as Hargreaves Lansdown. HL enables you to see risers, fallers, get an overview of world markets, drill down in a company’s fundamentals, compare charts, see what the most popular traded shares are from their 1.7 million customers and rank bonds by yield and coupons. They also produce a list of shortlisted funds, sector reviews and should you wish to use them for market timing technical analysis on their charting software.
There is no limit on the amount that you can contribute to a SIPP every year, however, there is a limit on the amount you can contribute and receive tax relief on. This is known as the annual allowance and it’s usually 100% of your taxable earnings or £40,000, whichever is lower. This annual allowance applies across all of your pension accounts and includes the value of any tax relief that is added to the contributions. Once you have made a taxable withdrawal from your SIPP, the annual allowance goes down to £4,000. This is known as the money purchase annual allowance. For higher earners, the rules around pension contributions are different. Higher earners face a tapered annual allowance. With a Junior SIPP, you can contribute up to £2,880 per year. Contributions into a SIPP pension can come from yourself, an employer, or someone else such as a relative or friend.
To open and pay into a SIPP, you must be aged between 18 and 75 and either a UK resident or a Crown employee (or married to or in a civil partnership with a Crown employee). Those under the age of 18 are eligible for a Junior SIPP.
You can have a SIPP alongside other pension accounts such as workplace pension schemes as well as other investment accounts such as ISAs. You’re allowed to have multiple SIPP accounts if you wish to.
Opening a SIPP is generally a straightforward process. Usually, you can open one online through a provider’s website. When you open a SIPP, you’ll need to fund your account. There are two ways to do this. One way is to make an initial contribution. The minimum investment for a SIPP varies among providers, however, in many cases, it is very low. The minimum SIPP investment with Hargreaves Lansdown, for example, is just £100.
The other way to fund your account is to transfer an old pension into your new account. To transfer an old pension, you will need to provide your new provider with a few details such as the name of your old provider, the policy type, your policy number, and the approximate value of your old pension.
When you contribute to a SIPP, the government provides you with tax relief on your contributions. When you receive tax relief, some of your money that would have gone to the government as tax goes towards your pension instead.
Once your SIPP is opened and funded, you can invest your money. How you invest is down to you. With a SIPP, you have full control over your investments. Most SIPP providers offer a wide range of investment options including UK and international shares, investment trusts, funds, exchange-traded funds (ETFs), and bonds. Some providers, however, offer more limited options. Most providers allow you to keep your SIPP savings in cash if you want to.
If you move overseas, it may still be possible to contribute to a SIPP. However, the rules around this are quite complex and depend on whether you still have taxable UK income and for how long you have been abroad. It’s a good idea to check these rules before you move abroad.
Because a SIPP is a retirement account, you cannot access money in a SIPP until the age of 55. In 2028, this will rise to 57. Once you turn 55, you can make withdrawals from your SIPP, however, you can only withdraw 25% of your SIPP savings tax-free. Anything above this will be added to your income and taxed at your normal rate.
Most SIPP providers do not allow you to withdraw money before the age of 55. If they do, they will likely charge you a large fee for doing so. Additionally, HMRC will tax the funds withdrawn at 55%.
Under current law you must be aged 55 or over to withdraw money from a pension, except under very special circumstances such as ill health. From 2028 the age limit increases to 57 years.
Yes. Investing with a regulated SIPP provider is generally very safe as UK regulators require SIPP providers to keep clients’ assets separate from their own money. This means that the assets cannot be taken by creditors if the firm goes bust. A SIPP trustee is an organisation that holds assets in a trust for the beneficiaries of the account. They are responsible for ensuring that the account holder’s investments are secure. A SIPP Administrator is an entity that is responsible for ensuring that a SIPP is run properly.
If a regulated SIPP provider fails, you will be covered by the Financial Services Compensation Scheme (FSCS). This protects up to £85,000 of your investment deposit per person per provider.
It’s important to understand, however, that investments within a SIPP come with risk. The FSCS won’t protect you if your SIPP if the investments fall in value.
Further reading: Can you switch SIPP administrators?
Many people are often interested in finding out which SIPPs offer the best returns. Comparing the performance of different SIPP accounts is difficult, however. This is because most SIPPs offer a wide range of investments and you are in charge of investing your money. Additionally, the returns from investments within a SIPP such as shares, funds, and ETFs are uncertain and past performance is not an indicator of future performance.
If your goal is to generate high returns from your SIPP, the key is to focus on the range of investments offered by the SIPP, as well as the fee structure, as these factors are the main determinants of a SIPP’s return potential.
No, Vanguard do not have a SIPP account option, they are a personal pension provider.
Vanguard is an investment management company that offers a wide range of low-cost index funds and ETFs and has around 30 million customers worldwide. With the Vanguard SIPP, investors have access to over 75 individual funds including ETFs, active funds, and index funds.
Vanguard’s personal pension has a low account fee of just 0.15% per year, capped at £375 per year. However, investors also have to pay fund management costs of around 0.20% per year on average.
One downside to this personal pension versus a SIPP accounts is that it offers fewer investment options than some other SIPPs do. For example, with Vanguard you cannot invest in individual shares.
Here is how Vanguard’s SIPP compares to Hargreaves Lansdown SIPP.
The big advantage of saving into a SIPP when you’re self-employed is that contributions can be treated as a business expense. This means that saving into a SIPP can be very tax-effective. So, many SIPPs are well suited to those who are self-employed.
Those who have the time to manage and monitor their pension savings may want to consider Hargreaves Lansdown’s SIPP. Hargreaves Lansdown is the largest investment platform in the UK with 1.5 million clients. This SIPP offers access to a vast range of investments including domestic and international equities, over 3,000 funds, bonds, and more. One advantage of this platform is that it offers plenty of research and investment tools to help you make investment decisions. Another advantage is that the customer service is very strong. On the downside, fees are higher than those of some other SIPP providers.
Those who don’t want the hassle of managing their own money may want to go with a managed provider such as Wealthify. Wealthify is a robo advisor that offers a managed pension product. With Wealthify, you choose an investment style based on your risk tolerance. The advantage of investing with Wealthify is that it’s very easy to set up a pension. One downside, however, is that there are only a few investment options to choose from, for example, you cannot invest in individual shares.
Investing in a SIPP is generally a straightforward process.
Before you can invest in a SIPP, you’ll need to open and fund an account. This can usually be done online. You can fund an account by making an initial contribution or by transferring your old pension accounts to your new SIPP.
When funding your SIPP, it’s important to remember that the money in a SIPP cannot be touched until you turn 55. So, you shouldn’t invest money you are likely to need before then.
Once your account is open and funded you will be able to invest your money. Your investment options will depend on the provider you choose. Some providers such as Hargreaves Lansdown, AJ Bell Youinvest, and Interactive Investor offer a vast range of investments including domestic and international shares, funds, investment trusts, ETFs, bonds, and more. Others, such as Vanguard and Wealthify, offer fewer investment options.
When investing in a SIPP, it’s important to consider your financial goals and risk tolerance. Those with a lower tolerance for risk should consider investing in lower risk investments such as cautious funds.
The best investments to buy for your SIPP are funds and large cap stocks. However, the best SIPP investments for you will depend on your personal financial goals, your risk tolerance, and the amount of time you have to devote to investment research. SIPP investment opportunities are broad and varied and include things like commercial property, shares, funds and ETFs. Here’s a rundown of considerations to think about when investing in a SIPP.
Further reading: Most popular investments for UK investors
Those who have time for investment research may want to consider investing in individual shares. This approach to investing has two main advantages. Firstly, you can potentially outperform the broader stock market if you pick the right stocks. Secondly, you can potentially save on fees. Generally speaking, over the long term, it’s cheaper to own a portfolio of individual shares than a portfolio of funds. On the downside, however, this approach is riskier than investing in funds or ETFs. When you invest in individual shares, you face stock-specific risk. It’s important to build a diversified portfolio to minimise these risks.
Those that do not have time for investment research or would prefer to outsource investment management to others may want to consider equity funds. Funds offer diversified exposure to the stock market which means that they are less risky than investing in individual shares. One example of a fund is the Fundsmith Equity fund. This is a global equity fund. This particular fund has been one of the most popular funds in the UK for many years now due to its strong performance track record. Past performance is not an indicator of future performance, however.
Another option to consider is investment trusts. These are like funds in that they provide diversified exposure to stocks. However, unlike regular funds, they are traded on the stock market. This means you can buy and sell them like regular shares. Two of the most popular investment trusts include the City of London Investment Trust, which aims to provide long-term growth in income and capital, and Scottish Mortgage Investment Trust, which aims to provide long-term growth.
Of course, there are many other investment options to consider. Most SIPPs enable you to invest in shares, funds, ETFs, commodities, bonds, and more. The key is to build a portfolio that is suited to your requirements and risk profile.
You can hold cash with most SIPP providers, however, as with a regular bank account, the returns on cash are likely to be low. Those looking for low-risk investments may want to consider cautious funds such as Vanguard’s LifeStrategy 20% Equity fund.
SIPPs require a certain amount of investment knowledge and time commitment. Investors must be willing to research the asset classes in which they invest and make important decisions about how to allocate their money, or they will need an adviser who can do so on their behalf. Markets can be volatile and making the wrong decision at the wrong time can wipe out a pension pot just as the saver reaches retirement. Savers must be sure they have the appropriate risk appetite and a full understanding of SIPPs before investing. If you already have a company pension, it may make more sense to increase contributions to that instead of setting up a SIPP. If you are a confident investor, who wants to take control of your retirement savings and consolidate other plans, a SIPP could be suitable.
Usually SIPPs are execution only. This means that unless the investor sought independent financial advice when allocating their money, the risks lie solely with them. Certainly in the beginning, it can be sensible to invest via a unit or investment trust rather than buying shares directly since a professional asset manager will make the stock selection decisions on your behalf. The SIPP provider is responsible for administering the plan and ensuring your money ends up as intended.
In an execution only SIPP, the provider will offer no advice on where to invest and savers might need support from an independent adviser. Full SIPPs may include some advice from the provider, while robo advice SIPPs will take all or some investment decisions on the investor’s behalf. There is no obligation to invest in all the asset classes on offer and it makes sense to choose those with which you are familiar.
It is possible to invest ethically within a SIPP. One way to do this is to invest in ethical investing, ESG investing, funds or ETFs. These are now offered by a wide range of SIPP providers including Hargreaves Lansdown, AJ Bell Youinvest, and Interactive Investor.
Some examples of ethical funds include:
- The Fundsmith Sustainable Equity fund. This fund has a similar philosophy to that of Fundsmith Equity but doesn’t invest in businesses in certain sectors such as alcoholic beverages or tobacco.
- The Royal London Sustainable Leaders fund. This fund invests in businesses that are deemed to make a positive contribution to society. It invests predominantly in UK businesses but also has a little bit of exposure to the US and Europe.
- The iShares MSCI World ESG Screened UCITS ETF. This is an ETF that provides exposure to global equities but screens out stocks related to controversial weapons, nuclear weapons, tobacco, thermal coal, oil sands, UN Global Compact violators, and civilian firearms.
If you want to generate good returns from your SIPP, there are three things you need to do:
- Choose superior investments. Of course, this is easier said than done. No one knows how an investment will perform in the future and past performance is not an indicator of future performance. By spending some time on research, however, it may be possible to identify investments with strong long-term growth potential.
- Manage risk carefully. Avoiding big losses is one of the keys to investment success. It’s important to build a diversified portfolio that contains many different assets. This will reduce the risk of suffering big losses.
- Minimise fees. Over time, fees can have a large negative impact on investment returns. You can reduce fees by selecting products with low fees and not trading excessively.
One way is to select a low-cost SIPP. Some SIPPs have lower fees and charges than others.
Another way is to invest in investments that have low fees. ETFs, for example, generally have much lower fees than actively managed funds.
It’s worth noting that on some platforms, some investments attract lower custody fees than others. For example, on platforms such as Hargreaves Lansdown and AJ Bell Youinvest, the annual custody fees for accounts with shares are lower than those for accounts with funds.
A third strategy that can help keep fees low is to minimise trading. Fees from excessive trading can quickly add up.
Tax relief is a reward from the government for saving for retirement. When you contribute to a SIPP, some of your money that would have gone to the government as tax goes to your pension instead.
Tax relief is paid on your pension contributions at the highest rate of income tax you pay.
Tax relief on SIPP withdrawals
There are rules around making a tax-free withdrawal from your SIPP and then making a contribution into the SIPP with that money to claim tax relief. This is known as ‘pension recycling.’ The rules – which are designed to stop the systematic exploitation of pension tax rules to generate artificially high amounts of tax relief – are quite complex. To decide whether your contributions have been significantly increased, HMRC will examine how much you might have contributed to your SIPP if tax-free cash from withdrawals had not been received and compare this to your actual contributions. You can find more information on pension recycling rules.
Yes, most SIPPs will let you transfer pensions in. However not all plans let you take your money out and even if you can transfer, you will likely pay charges. The rules and fees will vary across providers. If you have a final salary (defined benefit) scheme with your employer with a pot of £30,000 or more, you will need the transfer approved by a regulated adviser.
Yes. Most SIPP providers offer access to ETFs, index funds, and other passive investments. These kinds of investments have low fees.
You can use SIPP contributions to reduce your adjusted net income. This can potentially help you avoid Child Benefit tax charges if your income is just above the £50,000 Child Benefit threshold.
There is no limit on the amount that you can pay into a SIPP annually. However, there is a limit on the amount you can contribute and receive tax relief on. This is known as the annual allowance and usually, it is either 100% of your taxable earnings or £40,000, whichever is lower. This limit applies across all your pension accounts and includes the value of any tax relief added to the contributions. Higher earners face a tapered annual allowance.
The Lifetime Allowance (LTA) is the total amount of money you can build up in your pension accounts while still enjoying full tax benefits. If you breach the Lifetime Allowance, you will pay a tax charge on the excess whenever you take income or withdraw a lump sum from your pension, or reach the age of 75 without having taken any benefits. The Lifetime Allowance is currently £1,073,100.
When you die, the remaining value of your SIPP can be passed on to your nominated beneficiaries. You can nominate SIPP beneficiaries by completing a SIPP beneficiary or ‘expression of wishes’ form with your SIPP provider.
Money in a SIPP can normally be passed on free of Inheritance Tax. Any withdrawals the beneficiaries make will usually be tax free if you die before the age of 75. If you die aged 75 or older, any withdrawals made by beneficiaries will be taxed as income.
You can have as many SIPP accounts as you want. However, when you have multiple SIPP accounts, it can be harder to manage your money.
Yes. It is possible to have both a SIPP and a workplace pension. It’s also possible to have a SIPP and a private pension.
You can withdraw a lump sum from the age of 55. However, you can only withdraw 25% of your SIPP tax-free. The rest will be taxed at your normal income tax rate.
If your SIPP provider offers access to tradable instruments such as shares, ETFs, and index funds, then it is possible to trade within a SIPP.
Some providers, such as Saxo Markets, enable you to trade contracts for difference (CFDs) in a SIPP. Trading CFDs is a risky strategy, however, as your losses can exceed the amount traded.
Yes, with a Junior SIPP. SIPPs are available to those aged between 18 and 75. For those under the age of 18, Junior SIPPs are available. With a Junior SIPP, you can contribute up to £2,880 per year and contributions are subject to 20% tax relief. The money is tied up until retirement age.
Another investment option for those under the age of 18 is the Junior stocks and shares ISA. In this account, all investment gains and income are tax-free. The Junior ISA has an annual allowance of £9,000.
It is sometimes possible to borrow against the value of your SIPP. However, not all SIPP providers allow you to do this. Borrowing against a SIPP can be complicated so it’s a good idea to speak to a financial adviser before doing this.
Some SIPP providers offer access to hedge fund investments. One such provider is Hargreaves Lansdown. Through its platform, it’s possible to invest in funds offered by hedge funds such as Odey Asset Management and Man Group.
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