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What Is a SIPP Pension and How Do I Set One Up?

What Is a SIPP Pension and How Do I Set One Up?

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A Self-Invested Personal Pension (SIPP) is a type of personal pension which allows individuals full control over their investment.

Unlike traditional personal pensions which work with a pension provider choosing which funds are available (and are managed by a fund manager), a SIPP allows individuals to choose where they wish to allocate their money.

Many people prefer the flexibility of SIPPs as they can choose to invest in specific funds or switch to alternatives as and when they wish.

In this article, we take a brief look at what a SIPP pension is and how to set one up.

Please note that whilst this article is designed to provide an overview, it should not constitute financial advice and anyone looking to take their first steps into setting up a SIPP should speak to a registered financial advisor for further guidance.

What Is a SIPP Pension and How Do I Set One Up?
What Is a SIPP Pension and How Do I Set One Up?

What Are the Different Types of SIPP?

SIPPS have grown in popularity in recent years as savvy investors have been keen to take control over their retirement planning.

Without direct input from fund managers or pension providers, individuals have been able to choose which investments they wish to make.

They can choose between a wide range of assets including unit trusts, insurance company funds, commercial property as well as various deposit accounts with banks or building societies (amongst many others).

This flexibility means that investors can choose to maximise their pension in funds that suit their lifestyles.

However, it is important to understand that not all SIPPs are the same.

According to the consumer giant Which, there are two distinct types of self-invested personal pension:


This is the most comprehensive type of SIPP. You can choose from a wide range of investments, including commercial property.

Due to the scope of the investment, full SIPP providers (also known as pure SIPPs) may offer investment advice to help individuals maximise their return. However, full SIPPs are known for high set up fees as well as extensive annual charges.

For investors looking to invest large sums of money, full SIPPs are a good choice. For those with smaller budgets, a different type of SIPP may be more appropriate.


Whilst still offering comprehensive investment options, the Lite SIPP is more appropriate for those who generally want to invest in one particular asset.

Broadly speaking, Lite SIPPs do not invest in property or unquoted shares. Investors also do not speak with Independent Financial Advisors (IFAs) when it comes to Lite SIPPS, which significantly reduces the start-up costs.

Lite SIPPs tend to be a popular choice for those with smaller investment funds. Whilst it is possible to start from as little as £5,000, most investors choosing to set up Lite SIPPs have budgets of approximately £50,000.

Other Forms of SIPP

As you start your due diligence into SIPPs, you may come across terms such as ‘deferred SIPP’ or ‘hybrid SIPP’ which are similar to personal pensions yet are underwritten by a SIPP trust.

They may start as a personal pension with lower start-up costs but have the flexibility to convert to a full SIPP in the future.

As already mentioned, if you are considering investing in a SIPP, you should gain independent advice from a registered IFA who will be able to explain the full pros and cons of each style of SIPP. They will also be able to make recommendations for the right style of SIPP for your personal circumstances and investment levels.

Why Choose a SIPP Pension?

There are many reasons why an individual may choose to invest in a SIPP rather than a traditional personal pension.

As well as having the ability to retain full control over your investment portfolio, many investors are keen to be able to work with investments that suit their circumstances.

For instance, if they are ethically minded, they may choose to invest in assets that match their personal beliefs. Or, if they have a variety of different assets, they may choose to consolidate them in one place, allowing them to fully manage their growth potential.

Many SIPP providers enable online access to your investments, allowing investors greater flexibility to change their investment strategy at a time convenient to them.

There are also tax considerations in place.

Like other pensions, you can invest up to £40,000 per annum into your pension (or 100% of your pre-tax earnings – whichever is lower). If you are a basic-rate taxpayer, the UK government will add a further £25 for every £100 added into the pension. Higher rate taxpayers will benefit from an additional £40 per £100 investment, and this rises to £45 for additional rate taxpayers.

The biggest consideration for those considering investing in a SIPP pension is how much time they have allocated to manage their funds. The flexibility and control over assets are only beneficial if an investor has the time and knowledge to handle them correctly.

There is huge growth potential in self-invested personal pensions but if you’re not an experienced investor, there is plenty of scope for error. Therefore, you should only consider starting a SIPP if you are prepared to monitor and maintain your funds regularly.

What Are the Pitfalls When It Comes to SIPPs?

To manage your SIPP pension effectively, you will need to feel confident that you know what you are doing, and that you have time available to manage your fund.

Unlike personal pensions, you will not have a fund manager or an advisor to speak to (unless you seek independent advice).

This means that, without an overview of the entire market, there is more potential to make mistakes. Any mistakes can have a significant impact on the value of your portfolio, and you will have to take full responsibility if your value decreases.

You may also find that the start-up costs of investing in a SIPP – especially a Full SIPP – are considerably higher than that of a personal pension.

For those on smaller budgets, the higher setup fees may negate the growth potential of the initial investment.

What Are the Costs Involved in Setting up a SIPP?

The costs you will face when setting up a SIPP will depend on your chosen SIPP provider. With many different types of SIPP available, there are numerous fee structures involved.

For example, if you are looking to invest in a Full SIPP, you may have initial set up fees, as well as an annual management fee and trading fees to consider. If you choose to speak to a fund manager or an IFA, you may also have to add on their costs. There will also be specific fees for those choosing to invest in commercial property.

Those investing in Lite SIPPs may still have annual fees to consider as well as individual transaction fees or custody charges.

On top of this, you may need to factor in any financial penalties which may be incurred if you choose to withdraw your funds or take an income from your pension.

As always, it’s prudent that you discuss the cost implications with a registered financial advisor who will be able to explain all of the relevant costs involved in setting up your SIPP.

How Will I Know What Assets to Invest In?

A key advantage of a SIPP is that investors can choose exactly where their money is invested.

With personal pensions, your choices will be predetermined by the fund options selected by that pension provider. This is why individuals are attracted to SIPPs – they have full control over the investment and can choose from a wider variety of funds.

These assets include:

  • Cash deposits
  • Commercial property
  • Gilts and bonds
  • Government securities
  • Insurance company funds
  • Investment trusts
  • Open Ended Investment Companies (OEICs)
  • Stocks and shares (recognised on UK or international stock exchanges)
  • Traded endowment policies
  • UK national savings accounts (held with banks or building societies)
  • Unit trusts
  • Unlisted shares

There are many pros and cons to investing in each type of asset. Each will have its own growth potential and investors must understand all the implications before choosing to make any investments.

How Do I Set up a SIPP?

If you are confident that you have the knowledge and time to invest in managing your own SIPP, then you should speak directly to a registered financial advisor who can give you full information. As previously mentioned at the start of this article, this guide is only designed to provide an overview and should not constitute specific financial advice.

To open your own SIPP, you will need to choose a dedicated SIPP provider. These providers allow individuals to manage their own pension portfolios through their portals.

SIPP providers are heavily regulated by the Department of Work and Pensions (DWP), The Pensions Regulator, HM Revenue & Customs and The Financial Services Authority (FSA).

There is no one-size-fits-all approach to pension providers and the flexible nature of SIPPs means that each provider will have a myriad of options for you to choose from.

To help you choose your SIPP provider, you should consider:

  • Charges (factoring in the initial set-up fees, as well as any annual charges or exit fees)

  • Whether the service meets your specific needs (can you invest in the portfolio that you want? Do you need to speak to an advisor)

  • Whether you trust the provider to be able to securely hold your investment

  • How you will access your funds (will it be online or via an app)

  • How often the SIPP provider will update you as to the status of your investments

In addition, you should consider where your investment fits into their typical portfolio – for example, if you have £50,000 to invest, you may prefer to choose a provider which specializes in that specific fund size.

You may wish to learn from user reviews and find out what other investors are saying about their providers.

Each SIPP provider has its own strengths and individuals should undertake their own research before choosing to make any investment.

Popular SIPP providers include:


Offering smaller investment opportunities, Fidelity may be a good provider for those with less experience in investing.

Hargreaves Lansdown

This is one of the largest SIPP providers and can provide extensive portfolio choices for savvy investors who know what they are doing.

Standard Life

As a ‘name’ in the pension world, users may trust that Standard Life can offer exceptional support for their SIPP products. Portfolios can be managed online or via the Standard Life app, giving users flexibility in how they wish to manage their investments.


Many users may prefer the stability of investing their SIPP portfolio via a bank or building society.


Another experienced SIPP provider, Vanguard has recently launched a new low-cost SIPP with minimal fees attached.

What Is a SIPP Pension and How Do I Set One Up?
What Is a SIPP Pension and How Do I Set One Up?

When Can You Access the Funds in Your SIPP?

The earliest you can access your funds is the age of 55. This age has been confirmed by HMRC.

Some accounts may take many weeks for the withdrawal to take place, so you may need to apply for funds before you turn 55.

Like personal pensions, the first 25% of your total fund can be withdrawn in a lump sum, tax-free.

You may choose to then withdraw smaller, staggered amounts from your account where you only pay tax on the remaining 75%.

Some providers may allow access to funds before you turn 55 (for example, if you were retired due to medical reasons) but you may be impacted by having to pay tax as well as withdrawal penalties from the SIPP provider.

When you are ready to withdraw your funds, you should speak to a financial advisor who will inform you of the most tax-efficient way to gain access to your pension pot.

Final Thoughts

There is a lot to think about when it comes to investing in self-invested personal pensions.

Much of the criteria is based on your own knowledge and experience of investments, and how much time you are prepared to commit to handling your portfolio.

There’s little doubt that, when handled correctly, a SIPP can provide huge investment opportunities and provide a solid nest egg for your golden years, but there can be huge risks.

When managed incorrectly by someone who isn’t experienced or hasn’t the time to monitor portfolios, there are enormous risks involved which could negatively impact the final value of the pension fund.

This article has given some insight into what a SIPP is and how to set up a pension fund. With this information, you should arrange an appointment with an independent financial advisor who will be able to provide specific information tailored to your individual circumstances.

WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.