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What is a SIPP?

in partnership with Schroders Personal Wealth

SIPP stands for self-invested personal pension. This type of pension allows you greater freedom to choose how your pension pot is invested, compared to a standard pension. With this added flexibility, you can choose where your money is invested.

The money in your pension will be held until either the day you retire, or when you decide to access your money after turning 55.

Tax treatment depends on individual circumstances and may be subject to change. Pensions are a long-term investment. The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan, which isn’t guaranteed, and can go down as well as up. The benefits of your plan could fall below the amount paid in.

How does a SIPP work?

  • With a SIPP, you have the chance to choose how your pension pot is invested.
  • You’ll have the choice of topping up your pension whenever you like, through one-off or regular payments.
  • You can pay in up to £40,000 of your earnings per year. Once you have started to withdraw from it, you can still add up to £4,000 each tax year.
  • If you choose to access your retirement income before you retire, you’re usually able to withdraw up to 25% of it tax-free.

How many SIPPS can I have?

You can have as many SIPPS as you like. There's a £40,000 limit on how much you pay into your SIPP, or SIPPs, each year.

What can I invest in a SIPP?

SIPPs give you the chance to invest in:

  • Government securities.
  • Insurance company funds.
  • Investment trusts.
  • Stocks and shares.
  • Unit trusts.
  • National savings products.
  • Traded endowment policies.
  • Commercial property.

SIPP pros and cons

Pros of a SIPP

These are some of the benefits of using a SIPP:

  • Pass on some of your wealth without paying inheritance tax.
  • Make both regular and one-off payments.
  • Higher rate taxpayers can claim extra tax relief through self-assessment.
  • Withdraw up to 25% as a tax-free lump sum from the age of 55.
  • There’s no minimum age restriction for opening a SIPP.
  • Tax relief applies to contributions up to £40,000 per tax year.

Cons of a SIPP

There are some drawbacks to consider, such as:

  • You’ll pay tax on any lump-sum withdrawals of over 25% of your SIPP fund.
  • A lifetime limit of £1,073,100 currently applies across all your pension funds.
  • You can only access money from your SIPP when you’re aged 55 or older.

Want to learn more about Pensions?

Take a look at our pensions page and find out how expert advice could help you.

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Halifax is a division of Bank of Scotland plc. Registered in Scotland No. SC327000. Registered Office: The Mound, Edinburgh EH1 1YZ. Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 169628.

Schroders Personal Wealth is a trading name of Scottish Widows Schroder Personal Wealth Limited.