Self-Invested Personal Pensions (SIPPs) have grown in popularity among savers seeking more flexibility and control over their retirement investments. 

They allow you to choose from a vast array of assets to invest your pension in and give you complete control over where it’s invested.

This contrasts with traditional pensions which tend to offer limited default fund options. 

But while SIPPs empower savvy investors, they are not suitable for everyone due to higher risks and responsibilities involved. 

In this article we examine 9 key benefits of SIPPs, along with 4 potential drawbacks, to consider before committing to one. 

Weighing up the pros and cons will help you decide if a SIPP is the right pension choice.

The 9 Benefits of a SIPP

1. Investment Choice

One of the biggest advantages of a SIPP is the extensive investment choice they offer compared to traditional pensions. 

SIPPs give you the flexibility to build a tailored portfolio of investments within your pension. 

You can choose from a vast range of assets including individual stocks and shares, investment trusts, ETFs, bonds, property, cash, and thousands of mutual funds. 

This allows you to invest in line with your personal risk appetite and objectives.

With a SIPP, you can pick actively managed funds from top fund managers globally if you lack the time or confidence to choose investments yourself. 

Or you can even select ready-made passive portfolios aligned to your risk profile if you’re less confident. 

If you have specific sectors or markets you want exposure to, you can target these in a SIPP in a way that simply isn’t possible with standard pension funds. 

You can also move between investments easily within your SIPP to reflect changing market conditions.

Here is a table showing common investment options within a SIPP:

Investment TypeWhat is it?ProsCons
Stocks and SharesOwnership in individual companiesPotential for high returns, growthRisk of losing money, market ups and downs
FundsCollection of stocks, bonds, or other investmentsSpreads risk, professional managementFees, performance depends on fund manager
Investment TrustsClosed-ended funds that invest in various assetsSpreads risk, potential for income/growthFees, price can be above or below asset value
ETFs and Index FundsFunds that track a market indexLow fees, spreads risk, easy to buy/sellTied to overall market performance
Ready-made SIPP PortfoliosPre-selected mix of investments for your SIPPEasy to start, diversified, low effortLess control, performance depends on selection
Managed SIPP PortfoliosInvestments chosen by a professional managerExpert management, tailored to your goalsHigher fees, depends on manager’s performance
PropertyReal estate investments, e.g., commercial propertySpreads risk, potential income, inflation hedgeLess liquidity, tied to property market
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2. Tax relief on contributions

One major advantage of SIPPs is that they come with favourable tax relief, allowing you to grow your pension pot tax-efficiently.

While this is true of any pension, including your workplace pension, it’s what sets SIPPs apart from other investment accounts such as ISAs, general investment accounts, and even savings accounts.

Contributions into a SIPP are made net of basic rate tax. But your pension provider then claims back this basic rate tax on your behalf and adds it to your SIPP. This means for every £80 you contribute, £100 goes into your pension. 

And if you’re a higher or additional rate taxpayer, you can claim back the extra tax relief up to 45% in total through your self-assessment tax return. 

Tax relief on SIPP contributions is available on up to 100% of your earnings or a £60,000 annual allowance.

This upfront tax relief on contributions makes SIPPs a tax-efficient wrapper for your retirement savings. The compounding growth over time on the extra 20-25% added to your pension from tax relief can significantly boost your eventual retirement pot.

Also, all investment growth within your SIPP is free from capital gains tax

And, all investments within your SIPP are sheltered from income tax when it comes to dividends and interest. However, you will need to pay income tax when you eventually draw down.

You can take up to 25% of your SIPP tax-free from age 55 (or 57 from 2028), and after that 25% the remainder is treated as taxable income, so it’s best to spread out your withdrawals over many years as a retirement income.

3. Pension consolidation

A major benefit of a SIPP is the ability to consolidate other pensions you hold into one place. 

This allows you to manage all your retirement savings in one pension wrapper – much easier to keep track of and manage.

Many people accumulate multiple pensions over their working life from different employers, and keeping track of old pensions can be administratively burdensome. 

SIPPs enable you to transfer savings from old company and personal pensions into your SIPP.

You can see the total value of your pension in one place rather than having funds scattered across different providers. And you can align all your pension savings to your chosen investment strategy rather than having pots in default funds.

Transferring pensions into your SIPP is usually straightforward. Your SIPP provider will assist with the paperwork needed to move your savings, and there after often no charges or exit fees for transferring company pensions over a year old.

4. Flexible Contributions

Another key benefit of SIPPs is the flexibility they offer in terms of how and when you can contribute. This contrasts with many traditional pensions which require regular monthly contributions.

With a SIPP, you can choose to make one-off single contributions whenever you want. For example, you may receive an annual bonus or inheritance you can pay into your SIPP as a lump sum and benefit from tax relief up to your annual allowance. 

And SIPPs also still allow regular monthly contributions if you prefer drip-feeding money in.

You can also adapt your contribution levels each year to fit your circumstances. For instance, you may contribute more in years with higher earnings and less when finances are tighter – especially if you’re self-employed with fluctuating income. 

SIPPs can accept contributions up until age 75, and then tax relief is limited from age 75 onwards. You can even continue contributions after starting to draw retirement benefits.

5. You’re in Control of Investments

A key feature of SIPPs is that they put you in the driver’s seat when it comes to how your pension savings are invested. 

Whereas traditional pensions limit your choice to a selection of the provider’s own funds, a SIPP gives you control.

You get to choose exactly which investments to put your pension money into from the full range available. You also have the flexibility to switch between investments as your plans or market conditions change.

This control and flexibility caters to confident investors who want to be hands-on with their retirement pot.

6. Tax-free Lump Sum

One of the most appealing aspects of SIPPs is the ability to take up to 25% of your pension pot tax-free from age 55 (or 57 from 2028), which is earlier than some other pensions. 

This tax-free cash lump sum can provide you with an injection of funds in retirement. You have the flexibility to take the full 25% tax-free amount in one go when you initially start drawing SIPP benefits if you wish.

Alternatively, you can opt to take your tax-free cash in smaller chunks over time while simultaneously drawing taxable income from your SIPP. This may help manage your tax liability. 

For example, you could take 10% of your pot as tax-free cash to cover an expense, while taking the remaining taxable SIPP income you need to live on.

While taxable SIPP withdrawals count as income and are taxed at your marginal rate, the 25% tax-free lump sum is exempt from any tax. This can give your retirement finances a valuable boost.

7. Inheritance Tax Planning

A key advantage of SIPPs is that they can play an important role in inheritance planning due to the options available after death. 

Unlike some other pension types, uncrystallised SIPP savings can be passed down to beneficiaries after the death of the SIPP holder if they die before age 75 free of inheritance tax.

If the SIPP holder dies after age 75, beneficiaries pay tax at their marginal income tax rate when withdrawing the inherited pension. However, there is no inheritance tax levied on pension assets left to beneficiaries.

SIPP funds can be left to a spouse, civil partner, or other named beneficiaries. 

You can nominate who inherits your remaining pension in the event of your death for great flexibility, and this is not always possible with annuities where benefits cease on death unless you specify otherwise (and pay extra for it).

Drawing income via SIPP drawdown rather than buying an annuity also maximises the potential funds to leave behind. Any residual SIPP assets not used up during retirement can be inherited.

8. Security and Protection from Creditors

An additional benefit of SIPPs is that your pension assets are afforded protection from creditors. SIPPs are exempt from being seized to pay off debts in the event of your provider’s bankruptcy or insolvency. 

This means the funds in your SIPP cannot be tapped into by your SIPP provider if they themselves go into liquidation. You are also protected by the FSCS. 

But remember, this doesn’t cover you if the value of your investments fall. It is your decision as to what you’re invested in, and this comes with risks – if your SIPP loses money because the investments fall in value, there is no compensation for that.

9. Growth in SIPP Drawdown

Another advantage of SIPPs is that your pension investments remain unaffected after you start taking income in SIPP drawdown. This allows your savings to continue growing even during drawdown.

You might be drawing down your pension for 20, 30, or even more years, which is a long time for your investments to grow.

With an annuity, your pot is gone after converting it into fixed income. And although you can get annuities that increase in line with inflation or a fixed percentage, you have to pay more for this type of product and you don’t have the ability to control the investments.

With a SIPP, your money stays invested so can benefit from ongoing growth during your retirement years.

The 4 Drawbacks of a SIPP

1. Too Much Complexity and Choice

While the extensive investment options are a major SIPP benefit, it also introduces complexity compared to more traditional pensions. 

Choosing from thousands of funds, stocks, and assets requires research and financial expertise to select suitable investments aligned to your goals and risk profile. 

Actively managing these investments is also time-consuming.

For those unwilling or unable to make complex investment decisions, a SIPP may not be the most appropriate pension choice. The breadth of options could lead some to make poor investment calls.

And the administrative responsibilities of a SIPP holder add further complexity. This includes claiming tax relief, reporting changes, arranging transfers, managing your income, and handling regulatory paperwork.

Seeking independent financial advice is prudent before committing to ensure a SIPP is suitable – if you need help, speak to us at SIPP Advice to find out what we can do for you.

2. Charges

While SIPPs offer more flexibility than traditional pensions, this comes with charges that can eat into your retirement savings if not managed and can potentially be higher than workplace pension schemes.

There are several layers of potential fees with SIPPs to be aware of. 

Firstly, the SIPP provider charges annual administration and management fees which vary between providers.

On top of this, the funds or investments you choose within your SIPP often have their own charges levied by fund managers and platforms. Actively managed funds tend to have higher annual charges of 1% or more, while passive funds are much lower, and there are typically none of these charges when you hold shares.

Investing in stocks and shares also incurs dealing charges each time you buy or sell assets, which varies by investment platform. This can add up with frequent trading.

Other one-off charges may also apply such as fees for transferring pensions into or out of your SIPP, establishing property investments, or accessing your funds.

To learn more about SIPP fees, read out full guide to SIPP fees, costs and charges.

3. Ongoing Management

Actively managing a SIPP to get the most from it requires an ongoing time commitment. 

Selecting and monitoring investments, rebalancing your portfolio, adjusting to market conditions, and handling paperwork all demand input.

For those lacking the expertise or interest to be hands-on with their pension investments, the ongoing SIPP management could become burdensome, and paying for financial advice adds extra cost.

Alternative pensions where investment responsibilities are delegated to the provider may suit those not wanting the continuous involvement a SIPP requires. It really depends on your financial goals and preferences. 

4. No Guaranteed Income

Unlike purchasing an annuity which provides a guaranteed income for life, drawing income directly from a SIPP via drawdown comes with risks. 

There is no certainty over how long your pension pot will last or the income you’ll receive in future years. This depends on factors like investment performance and how much you withdraw.

Poor investment returns or excess withdrawals could see your SIPP depleted much faster than expected, and there is a risk of running out of funds in later retirement.

Annuities on the other hand provide peace of mind that income is secure for the rest of your life.

For those who prioritise certainty in retirement income, annuities may be preferable to the unpredictability of drawdown.

That being said, you can purchase an annuity with your SIPP funds at any point, so there’s always the flexibility to change your retirement income in that regard. 

Also, most people are entitled to some or all of the state pension which gives you a guaranteed income for life and plugs a part of this requirement for many pensioners.

Seeking Advice can be Prudent

While SIPPs offer more flexibility and control than traditional pensions, they are complex products with more risks and responsibilities for the holder. 

Taking the time to thoroughly research SIPPs yourself or seeking professional financial advice is strongly recommended before opting for one. 

At SIPP Advice, the regulated financial advisors we work with have extensive expertise in Self-Invested Personal Pensions. They can provide guidance on whether a SIPP is right for your needs and circumstances.

They can also assist with consolidating old pensions into a SIPP, recommending tax-efficient investment strategies tailored to your goals, and ensuring you avoid costly pitfalls.

To discuss your requirements and see how SIPP Advice can help you, contact us today for a free initial consultation.


What are the benefits of having a SIPP?

SIPPs allow a wider range of investments, tax relief on contributions, 25% tax-free lump sum, pension consolidation, and inheritance planning benefits.

What is the disadvantage of a SIPP pension? 

SIPPs can have higher fees, complexity, require time for ongoing management, and have less guarantees than annuities.

Is a SIPP better than a normal pension?

SIPPs are better if you want investment control and flexibility. Normal pensions are simpler with fewer responsibilities.

Is it better to have a SIPP or an ISA?

SIPPs benefit from tax relief and employer contributions which ISAs don’t get, but ISAs allow earlier access.

Does paying into a SIPP reduce tax? 

Yes, SIPP contributions get 20-45% tax relief reducing your current tax bill if a taxpayer.

Do I have to declare SIPP on tax return?

Only if you want to claim higher rate tax relief – basic rate is automatically claimed.

How do I avoid 40% tax UK?

Contributing to a pension like a SIPP attracts 40% tax relief, reducing your taxable income. This is only up to your annual allowance of £60,000 or your annual income, whichever is higher.

How do I get 40% tax relief on SIPP?

Claim it on your self-assessment tax return if a higher rate taxpayer. Tax relief up to 45% is possible. You’ll get 20% from your SIPP provider, and the extra 20-25% needs to be claimed via self-assessment.

How much of a SIPP is tax free?

You can take 25% of your SIPP tax-free from age 55 (or 57 from 2028). The rest is taxed as income when withdrawn.

Can I buy a holiday let with my SIPP?

Yes, SIPPs can purchase a property like holiday lets to rent out, which can provide retirement income.

Why is my SIPP losing money?

Potential reasons are high fees, poor investments, or negative market conditions. We recommend seeking financial advice if you’re unsure. 

What happens to a SIPP on death?

SIPP assets can be passed to beneficiaries and dependents according to your nomination, with favourable tax treatment compared to other assets such as un-wrapped investments.