personal pension

Self-invested personal pension

A Self-Invested Personal Pension (SIPP) is the name given the type of UK government approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of HM Revenue & Customs (HMRC) approved investments.

It is one of two types of UK personal pension scheme, the other being a Personal Pension Plan, a subset of which is the Stakeholder Pension Plan. SIPPs, in common with personal pension schemes, are tax "wrappers", allowing tax rebates on contributions in exchange for limits on accessibility. The HMRC rules allow for a greater range of investments to be held than Personal Pension Plans, notably equities and property. Rules for contributions, benefit withdrawal etc are the same as for other personal pension schemes.

Investment choice

Investors may make choices about what assets are bought, leased or sold, and decide when those assets are acquired or disposed of, subject to the agreement of the SIPP trustees (usually the SIPP provider).

The range of assets permitted by HMRC includes : 

Investments currently permitted by primary legislation but subsequently made subject to heavy tax penalties (and therefore typically not allowed by SIPP providers) include : 

  • Gold bullion
  • Any item of tangible moveable property (whose market value does not exceed £6,000) - subject to further conditions on use of property
  • other exotic assets like vintage cars, wine, stamps and art
  • Residential property


The rules and conditions for a broader range of investments were originally set out in Joint Office Memorandum 101 issued by the Inland Revenue in 1989. Today the rules have been incorporated into The Personal Pension Schemes (Restriction on Discretion to Approve)(Permitted Investments) Regulations 2001 (SI 2001/117) which came into force with effect from 6 April 2001.


Unlike conventional personal pensions where the provider as SIPP trustee has ownership and control of the assets, in a SIPP the member may have ownership of the assets (via an individual trust) as long as the scheme administrator is a co-trustee to exercise control. In practice, most SIPPs do not work this way and simply have the provider as SIPP trustee.

The role of the scheme administrator in this situation is to control what is happening and to ensure that the requirements for tax approval continue to be met.

The pensions industry has gravitated towards three industry terms to describe generic SIPP types:

1. Deferred. This is a type of scheme in which most or all of the pension assets are generally held in insured pension funds (although some providers will offer direct access to mutual funds). The deferral of self-investment or income withdrawal activity until a later date gives rise to the name. These schemes are in effect conventional personal pensions with a 'SIPP option' that one may exercise later. In some newer schemes of this type, there are over 1,000 fund options, so they are not as restrictive as they once were.

2. Hybrid. A scheme in which some of the assets must always be held in conventional insured pension funds, with the rest being able to be 'self-invested'. This has been a common offering from mainstream personal pension providers, who require insured funds in order to derive their product charges.

3. Pure. Schemes offer unrestricted access to many allowable investment asset classes.

Tax treatment

Contributions to SIPPs are treated identically to contributions to personal pensions. Individual contribution will receive automatic basic-rate tax-relief; higher-rate taxpayers can claim additional relief through their tax returns. Employer contributions are allowable against corporation or income tax.

Income from assets within the scheme is untaxed. Growth is free from capital gains tax (CGT).

Pension income provided either from an annuity or via income withdrawal is taxed as earned income at the members highest marginal rate.

Investors can invest up to 100% of earned income up to the annual allowance of £235,000 for the 2008/09 tax year. Also, if the fund value exceeds £1.6 million at retirement during the 2008/09 tax year, then the amount above £1.6 million will be taxed at 55%.

SIPPs can borrow up to 50% of the net value of the pension fund to invest in any assets, although in practice SIPP trustees are only likely to permit this for commercial property purchase.


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