SIPPs: what they are and why you should consider them


Their flexibility makes self-invested personal pensions an appealing option for SME owners. Here’s what you need to know

Read time: 3 min read

Self-invested personal pensions (SIPPs) are a popular retirement investment vehicle for entrepreneurs, thanks to their flexibility. More than 3.4 million SIPPs were sold in the four years to 2021, and annual sales shot up by 15% to 852,000 in 2021.1

Here, we answer some of the most common questions business owners have about SIPPs.

What is a SIPP and how does it work?

A SIPP is a personal pension with wider investment options. In addition to the collective funds available in other types of pension, you can invest in commercial property, land and direct shares – but different SIPP providers offer different options. For some business owners, moving their business premises into a SIPP can be highly attractive, but financial advice should always be sought to understand the risks and implications.

What age can I access my SIPP?

One attraction of a SIPP is that you can access it at age 55 – much earlier than your State Pension. This age limit will rise to 57 in 2028. Any UK resident under 75 can pay into a SIPP, subject to certain amounts and conditions.

What are the tax and other benefits?

Tax benefits in SIPPs are similar to those of other pensions, with your contributions receiving Income Tax relief at source. Your company can also contribute to your SIPP out of pre-tax profits, which should reduce your Corporation Tax. This makes SIPPs an efficient way to extract profits from your company.

You can also borrow up to 50% against the value of your SIPP to fund additional investments. This may help you pay for an office, for example – but again, financial advice should always be sought to understand the risks and implications.

How can SME owners best use SIPPs?

Claire Trott, Divisional Director – Retirement and Holistic Planning at St. James’s Place, says using your SIPP to buy commercial property for your company enables you to make the purchase without removing working capital from the business. This may be crucial if it’s still growing.

“Putting property in a SIPP also separates it from the business,” she says. “So should the worst happen, the property won’t be available to creditors and the SIPP can rent it to another tenant. The rent your company pays will be a business expense, so it will reduce Corporation Tax. But it will also fund your pension growth. When you no longer need the property, you can sell it and any growth on the value will be free from Capital Gains Tax.”

If you borrow against your pension to buy a property, you have the potential to repay this using the rental income received by the SIPP, which isn’t taxed. So you can repay the borrowing faster than if the company or an individual director had bought the property.

What are the disadvantages of a SIPP?

SIPPs are more complex, especially where they hold more esoteric assets.

Tony Clark, Senior Propositions Manager at St. James’s Place, highlights that commercial property is an illiquid asset, so you need help from a financial adviser to ensure you have enough liquid funds to take income when you need. It’s rarely wise to have your whole SIPP tied up in illiquid assets.

“SIPPs are great but using the flexibility to, for example, hold a commercial property can create complexity,” he says. “You need a financial adviser to understand how to do it, make sure it’s suitable for you and pick the right provider.”

SIPPs charges are often flat rate or tiered, so can be more cost effective for those with larger funds.

Claire says: “To invest in commercial property or individual shares, you need sufficient funds to make it worthwhile. The higher fees in some SIPPs and additional charges for investing in such assets can be prohibitively expensive and unlikely to be suitable for those with smaller funds.”

What other options are there?

Another retirement-saving option for SME owners is a small self-administered scheme (SSAS). These have similar investment options to SIPPs but must be attached to a sponsoring employer. They have the extra benefit that they can lend money to the employer, but there are regulations surrounding this, so you should take advice.

Tony says a simpler option for individuals is a personal pension, some of which have lower charges than SIPPs.

“Too often, people take SIPPs out with the best intentions of investing in wonderful things, but then never get around to it,” he says. “So, make sure you understand how much that extra flexibility is costing you and that you will use it. For some business owners, a straightforward personal pension can cover everything they need at a better price. Advice is key to understand the most suitable option for your needs and goals.”

Seek advice

We can help you choose the right pension and ensure your retirement plans are on track. Contact us today for advice.

The value of any pension, including SIPPS, will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The flexibility of a SIPP allows you to spread the risk, especially if some investments perform badly. However, these do tend to have higher costs than a standard pension and active management is essential to maximise the benefits of the wider investment choice on offer. For these reasons, they will not be suitable for everybody and generally only those who are fairly experienced at actively managing their investment should consider this type of investment.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Any tax relief over the basic rate is claimed via your annual tax return.


1 Retail Investments Product Sales Data Dashboard, Financial Conduct Authority, June 2022

SJP Approved 01/11/22


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