What are the benefits of a SIPP?

When you open a SIPP, you can look forward to two main tax benefits. First, your investments will grow free from capital gains and income tax. Second - and most importantly - when paying into your SIPP, you receive government tax relief.


SIPPs work like a standard pensions, but with added benefits - from generous tax reliefs to allowing more control over your savings. 

Investment freedom

The first benefit, and the most obvious, is the freedom over your savings and how they’re invested. If you’re an experienced investor who’s comfortable making investment decisions, or you have an independent financial advisor to make decisions on your behalf, a SIPP could give you the control over your retirement savings that you’re looking for. 

SIPPs can hold a wide range of investments (covered in the ‘what can SIPPs invest in?’ section below), so you’re spoilt for choice in that respect. This is in contrast to other pension schemes, where their investment choice is often small, or you don’t get much of a say at all - your investments are chosen for you. Not only this, but SIPPs allow you flexibility over when how much you invest in your pension.

Tax relief

Tax reliefs are a huge benefit of any pension, and SIPPs are no different. Tax reliefs on pensions are important because they can help boost the amount you have to work with when you retire, and with a SIPP, you can get up to 45% tax relief on contributions - depending on your marginal rate of tax. 

If you’re a non taxpayer, you are entitled to 20% tax relief on £2,880, which will boost it to £3,600. Basic-rate taxpayers are also entitled to 20% tax relief per year, while this increases to 40% for higher-rate taxpayers and 45% for additional-rate taxpayers. 

With a SIPP, your investments also grow free from income tax and capital gains tax, and you are usually able to withdraw up to 25%of your SIPP fund tax free. 

Pension amount

The amount that you can pay into a SIPP is generally quite high, too. This could be very beneficial as the state pension will usually leave you with much less than you would typically need to see you through retirement. 

Generally, there is no maximum amount that you can pay into a SIPP, but there is a limit to the amount of contributions that receive tax relief. For most people, this is either 100% of their taxable earnings or £40,000 each tax year, whichever is lower.

You should also consider the lifetime allowance, which covers all of your pension schemes. The lifetime allowance changes each year in line with inflation, and for the 2019/20 tax year, it’s £1,055,000. 

You can’t withdraw funds from a SIPP until you are 55, making it a safe pension tool as, even if you’re tempted, you can’t access your money early. 



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To find out more, download our free IFISA guide.

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