SIPP: The Self-Invested Pension and How Tax Relief Works
A Self-Invested Personal Pension (SIPP) is a pension wrapper you open and manage yourself, choosing the funds, ETFs, shares or bonds inside it. Contributions attract income tax relief at your marginal rate, growth is untaxed, and from the normal minimum pension age you can take 25% tax-free with the rest taxed as income.
The relief is the engine. A basic-rate taxpayer pays £80 and the provider claims £20 from HMRC, so £100 lands in the SIPP; a higher-rate taxpayer claims a further £20 through self-assessment, making the real cost of £100 in the pot £60, and an additional-rate taxpayer £55. You can contribute up to 100% of your relevant UK earnings or £60,000 a year, whichever is lower, and carry forward unused allowance from the previous three tax years. Non-earners can still put in £2,880 and receive £720 relief.
Above £260,000 of adjusted income the annual allowance tapers by £1 for every £2, down to a floor of £10,000, and once you have flexibly accessed any pension the Money Purchase Annual Allowance limits further contributions to £10,000. The lifetime allowance was abolished in April 2024; what remains is the Lump Sum Allowance of £268,275, the most you can take tax-free across all your pensions.
You cannot touch the money until the normal minimum pension age — 55 today, rising to 57 from 6 April 2028 — except in serious ill health. From that age you can take the 25% tax-free portion in one go or in slices, draw an income through flexi-access drawdown, buy an annuity, or take lump sums that are 25% tax-free and 75% taxable. Drawing too much in one tax year can push the taxable part into the higher-rate band.
A SIPP does not replace a workplace pension; it sits beside it. The employer contribution is free money you only get through the workplace scheme, so the usual order is: contribute enough at work to capture the full match, then use a SIPP for extra contributions if you want more investment choice or lower charges than the workplace default fund offers. Old workplace pots can be consolidated into a SIPP, but check for guarantees or exit fees first.
On death, unused pension funds have passed to beneficiaries free of inheritance tax, tax-free if you die before 75 and taxed as the beneficiary's income after. From April 2027 unused pension pots are due to fall inside the estate for inheritance tax, which changes the calculus for anyone who planned to leave the pension untouched and spend other assets first.
Richify shows all your pensions — SIPP, workplace, old employer pots — as one retirement number, with the tax relief you have claimed and the relief you are still owed through self-assessment.
