What is a SIPP pension?
According to MoneyHelper any UK resident aged 18 to 74 can open a SIPP. You can also open one on behalf of a child. Contributions are allowed up to age 75, after which new contributions are no longer eligible for tax relief.
How does a SIPP work?
A SIPP works in the same way as other defined contribution pensions, with the added advantage of a wider investment choice. Here is the basic process:
1. You open a SIPP with a provider and make contributions, either as a regular payment or a lump sum.
2. Your provider claims basic-rate tax relief of 20% from HMRC and adds it to your pot (remember this will differ depending on which tax bracket you’re in). This typically takes six to eleven weeks to arrive.
3. You choose how to invest your pension pot from the options available on your provider's platform, which may include shares, ETFs, funds, bonds and cash.
4. Your investments grow free from UK income tax and capital gains tax within the SIPP wrapper.
5. From age 55 (rising to 57 from April 2028), you can begin drawing from your SIPP, with this income subject to tax. You can usually take up to 25% as a tax-free lump sum, with the remainder taxed as income.
A SIPP can be well suited to investors who want access to a broad range of assets. For example, many SIPP holders invest in ETFs as part of a diversified portfolio. Our guides to the best UK ETFs and the best global ETFs can help you explore some of the options available. It’s also important to be aware of what an ETP is.
SIPP: key facts for 2026/27
£60,000 Annual allowance or 100% of earnings, whichever is lower (House of Commons Library)
Up to 45% Maximum tax relief on contributions (HMRC)
25% Tax-free lump sum on retirement up to £268,275 (HMRC)
How does SIPP tax relief work?
Tax relief is one of the most compelling reasons to invest in a SIPP. When you contribute, the government effectively tops up your payment based on your income tax rate. The following relief rates apply for 2026/27:
Tax band | Tax rate | Relief on a £1,000 contribution | Net cost to you |
Basic rate | 20% | £200 added by HMRC automatically | £800 |
Higher rate | 40% | £400 (claim extra via Self Assessment) | £600 |
Additional rate | 45% | £450 (claim extra via Self Assessment) | £550 |
Basic-rate relief is added automatically by your SIPP provider, who claims it from HMRC on your behalf. Higher and additional-rate taxpayers need to claim the extra relief through their
SIPP annual allowance for 2026/27
The annual allowance is the maximum you and your employer can contribute to your pensions in a single tax year before a tax charge applies. For 2026/27, HMRC confirms the standard annual allowance is £60,000, or 100% of your UK earnings, whichever is lower. This total covers contributions from all sources, including your own payments, employer contributions and any tax relief received.
There are some important variations to be aware of:
Tapered allowance: if your adjusted income exceeds £260,000, your allowance is reduced by £1 for every £2 of income above that threshold.
Money Purchase Annual Allowance (MPAA): once you start drawing taxable income from a SIPP, your allowance for future contributions drops to £10,000.
Carry forward: if you have not used your full allowance in the previous three tax years, you can carry unused amounts forward and contribute more than £60,000 in a single year.
Non-earners: if you have no earnings, you can still contribute up to £2,880 per year and receive tax relief, bringing the total to £3,600.
When can you access a SIPP?
Under current rules (which can change), you can begin drawing from a SIPP from age 55. However, the government has legislated for this to rise to 57 from 6 April 2028. Some savers may retain a protected pension age allowing access at 55 if their scheme rules allowed this before November 2021, but this should be confirmed with your individual provider. For these reasons, many investors prefer to invest in both an ISA and SIPP, helping to reduce the uncertainty surrounding changing legislation.
When you do access your SIPP, you have several options:
Tax-free lump sum: you can usually take up to 25% of your pension pot tax-free, capped at £268,275 across all your pensions. The remainder is taxed as income at your marginal rate.
Advantages and risks of a SIPP
Advantages | Risks and limitations |
Generous tax relief, up to 45% depending on your income tax band | Your money is locked away until age 55 (57 from 2028), so a SIPP is not suitable for short-term savings |
Tax-free growth on investments held within the wrapper | 75% of withdrawals are taxed as income, which can push you into a higher tax band in retirement if you take large sums |
Wide investment choice, including shares, ETFs, investment trusts, bonds and commercial property | Investment risk, as the value of your pot can fall as well as rise depending on your choices |
Unused allowance can be carried forward for up to three years | The tapered allowance limits contributions for those earning over £260,000 |
Ability to consolidate multiple old pension pots into a single account | The Money Purchase Annual Allowance (MPAA) of £10,000 applies once you start drawing taxable income |
25% tax-free lump sum available on retirement | Proposed changes would bring unused pension funds into inheritance tax from April 2027, which could affect estate planning |
SIPP FAQs
SIPP stands for self-invested personal pension. It is a type of personal pension that allows you to choose and manage your own investments within a tax-efficient wrapper, rather than being limited to a default fund selected by an insurer.
A SIPP is essentially a do-it-yourself pension. You decide where your retirement savings are invested, whether that is in shares, ETFs, bonds, funds or other eligible assets, and you benefit from the same tax relief as any other UK pension.
The level of tax relief depends on your income tax band. Basic-rate taxpayers receive 20% relief automatically, meaning a £800 contribution becomes £1,000 in your pension. Higher-rate taxpayers can claim up to 40%, and additional-rate taxpayers up to 45%, through Self Assessment. Even non-taxpayers can contribute up to £2,880 per year and receive £720 in relief.
The standard annual allowance is £60,000 for 2026/27, or 100% of your UK earnings if that is lower. This covers all pension contributions from all sources in the tax year. High earners above £260,000 are subject to a tapered allowance.
You can currently access your SIPP from age 55. This is rising to 57 from 6 April 2028 under legislation already passed by Parliament. Some savers with a protected pension age may retain access at 55.
The main differences are tax treatment and accessibility. A SIPP gives you upfront tax relief on contributions but locks your money away until retirement age, with 75% of withdrawals taxed as income. An ISA offers no upfront tax relief but allows fully tax-free withdrawals at any time. Both allow tax-free growth on investments.
Yes. There is no restriction on holding both, and many investors use the two accounts together. A common approach is to use a SIPP for long-term retirement saving (taking advantage of the tax relief on contributions) alongside an ISA for more accessible medium-term savings.
SIPPs typically allow you to invest in a wide range of assets, including UK and international shares, ETFs, investment trusts, bonds, funds, and in some cases commercial property. The exact range depends on your provider. For ideas on what to consider, see our guides to the best UK ETFs and the best global ETFs.
