‘SIPP’ is an acronym for self-invested personal pension which is a pension product available in the United Kingdom. Whilst these products are a great tool for building wealth and saving for retirement, it can be confusing to understand what you can and can’t do with one of these pension plans.
You can not have a joint self-invested personal pension (SIPP) with your partner in the United Kingdom. Pensions are held in each individuals name and tied to your national insurance number. There is nothing stopping couples from transferring money to each other to invest in their respective SIPPs.
So whilst it isn’t possible to have a joint SIPP, that shouldn’t put individuals in the UK off from making full use of these products to build their retirement savings over time. For more information on SIPPs and answers to common questions, have a scan through the rest of this post.
Can I have a joint pension plan (SIPP) with my parner.
It is not possible to have a joint self-invested personal pension (SIPP) or any type of joint pension with your spouse or partner. Pensions are tied to individual names and national insurance numbers. Both halves of a married couple could open their own SIPPs and invest into each as they see fit.
One of the defining factors of a SIPP is the fact that it is tax-advantaged. This means that when people contribute money to their SIPP, these contributions are not taxed and the contributions should come from gross income before income tax has been applied.
For most employed people, your employer will automatically deduct tax before transferring you your net salary which is after income tax, national insurance and any other related deductions are made.
Therefore, if you were to contribute £1,000 to your SIPP, the government would top this up by 20%, 40% or 45% depending on which tax bracket you are paying income tax in.
For example, if you are earning £40,000 per year, you will be paying income tax at the 20% rate. So if you invested £1,000 into your SIPP, the government would top this up by 20% – £200 to reimburse the tax you already paid on this amount as you earned it.
Similarly, if you are earning £200,000, you will be paying income tax at the 45% rate on all income above £150,000. As such, if you invested £1,000 in your SIPP, the government would top this up by 45% – £450 to reimburse the tax you paid at this rate when you earned the income.
What is a Self Invested Personal Pension (SIPP)?
A self-invested personal pension (SIPP) is a pension wrapper offered in the United Kingdom and endorsed by the government which allows individuals to save and invest money for retirement. A SIPP allows for a greater choice of investment options than a traditional personal pension plan.
Unlike a typical workplace pension, where you and your employer both contribute money and it is typically invested in the pension provider’s standard retirement fund, a SIPP allows for much greater flexibility and can be seen as more of a “do it yourself” option.
Unlike a workplace pension, employer’s don’t always contribute towards their employees SIPPs (although they can do) but these pension types are tax-advantaged so that all contributions are topped up by the government at your prevailing tax rate.
Investments held within this pension wrapper are protected from tax whether that be income tax on dividends earned or capital gains tax on increases your investments have made over time.
One of the hallmarks of the SIPP is the level of flexibility when it comes to what to invest in. SIPPs on most providers (e.g. Vanguard, Hargreaves Lansdowne etc) will allow users to invest in various different assets (stocks, bonds etc), various different funds (bundles of assets) or even individual stocks (e.g. Apple).
Can I transfer my workplace pension to a SIPP?
You can transfer both your current or previous workplace pensions into your self-invested personal pension. This is usually easy to do following prompts on your SIPP providers website however it’s worth exercising caution to check that you will not suffer exit charges or give up valuable benefits.
The process of transferring pensions into a SIPP is known as pension consolidation. There are advantages and disadvantages of doing this as listed below:
Advantages:
- Keep all your pension balances in one place.
- Easier to manage a single pension rather than multiple old accounts.
- Reduce the risk of “losing” or forgetting about an old workplace pension.
- Can make sure your pensions are invested in the optimum assets for your risk profile.
- Can make sure you are not over-paying on platform or asset management fees.
Disadvantages:
- It can be an administative burden to consolidate numerous pensions.
- In rare cases, there can be exit charges for transferring your pension from one place to another.
- You may risk giving up valuable benefits particularly when it comes to things like final salary pensions.
- You may inadvertently invest your money in inappropriate assets if you don’t know what you’re doing.
On which platform should I open a SIPP?
SIPPs are available on reputable, low-cost platforms like Vanguard (0.15% annual charge) or Hargreaves Lansdowne (0.45% annual charge). Vanguard offers the choice of over 100 index funds whilst Hargreaves Lansdowne has thousands of investment options for maximum flexibility.
As I mentioned in my guide to investing using Vanguard my personal preference when it comes to investing platforms is Vanguard. They are reputable, user-owned and very low-cost offering an excellent array of index funds which helps to steer their investors into good investing decisions.
Vanguard UK has started offering a SIPP with a very low annual charge of just 0.15%. That means if you had a SIPP balance of £50,000 you would only be paying Vanguard £75 per year in account fees. Vanguard customers have access to a large number of index funds which are also very low cost (some as low as 0.06%!).
For those wanting a little extra flexibility, Hargreaves Lansdowne is a great choice. Although a bit more expensive as 0.45% annual charges, it offers far more choices for its user to invest into and, unlike Vanguard, you will be able to invest in individual stocks like Apple or Microsoft if that is what your preference is.
Should I invest in an ISA or SIPP first?
Deciding whether to prioritise investing in your ISA or SIPP first is a matter of preference. The ISA offers greater flexibility as there are no early withdrawal penalties as there are with a SIPP. However, the SIPP has the government top-up on contributions which provides added value.
Of the two, the ISA is the far more flexible option. ISA users can withdraw their money whenever they want without paying any penalties or charges. For those who run into financial trouble or are looking to fund a major purchase like a house deposit, this flexibility can be invaluable.
SIPPs on the other hand are part of the pension family which means they are designed to save funds for retirement. As such, if you withdraw money from your SIPP before retirement age (55) there is a heavy tax penalty of 55% on any funds withdrawn before this date.
Whilst both ISAs and SIPPs are shielded from tax, the ISA does not have the tax top-up mentioned above. In a SIPP, the government top’s-up your contributions by your current income tax rate (20%, 40% or 45%) meaning that you essentially contribute to your pension on your pre-tax income.
Whilst SIPP withdrawals are still taxed, this can still provide a huge monetary benefit if, for example, you are saving 40% or 45% on contributions and then only withdrawing at the 20% income tax level during retirement.
For more consideration of where to invest your money, check out my post on ‘Where Should You Invest Once You Have Maxed Out Your ISA?’
Is a SIPP the same as a 401k in America?
A SIPP is a self-invested personal pension available in the UK whilst a 401k is an employer-sponsored retirement account in the United States. Whilst both are tax-efficient retirement savings vehicles, they are not the same thing. The 401k has more in common with a workplace pension in the UK.
For a better understanding of what a 401k is – please refer to this excellent guide.
Can you have more than one Self Invested Personal Pension (SIPP)?
You can have more than one self-invested personal pension (SIPP) and there is no limit to the number of SIPPs you can have at any one time. The annual contribution allowance of £40,000 per year is across all of your SIPPs, not per SIPP. You can have SIPPs open alongside workplace pensions and ISAs.
It is possible to have more than one SIPP open and unlike with an ISA, you can contribute to multiple SIPPs in the same tax year provided you stay below the annual contribution limit of £40,000 per year in aggregate.
Despite this, there is not much benefit to opening multiple SIPPs. If anything, this adds to the administrative burden when it comes to remembering things like log-in details or passwords and checking account balances.
One benefit that I can see is that different SIPP providers such as Vanguard and Hargreaves Lansdowne (both mentioned above) give you access to a wider selection of investment options to choose from.
The other benefit is FSCS protection. Each SIPP you own is protected up to £50,000 by the FSCS in the event that the investment provider goes under. As such, it may be safer to invest £50,000 into four different platforms SIPPs than £200,000 into a single SIPP.
However, by investing with global, reputable companies like Vanguard and Hargreaves Lansdowne, the risk of a serious platform issue is very low.
Similarly, it is perfectly allowable to have a private SIPP open alongside your workplace pension account. Many people employ the strategy of opening a SIPP that they contribute to overtime and whenever they change employers, they transfer their workplace pension balance into the SIPP.
Can you open a SIPP at any age?
You can open a SIPP at any age up to 75 years of age. Those over 75 are not able to open a new SIPP account. Before opening a SIPP, it’s important to note that the money will be inaccessible until you are 55 without heavy tax penalties. Parents can open a Junior SIPP for their children at any age.
Whilst 75-year-olds and above will not be able to open a new SIPP account, existing SIPP accounts will continue to be invested as they have been up to that age.
Those above 75 will still be able to make contributions to their SIPPs if they choose to but they will no longer benefit from the tax advantage (government top-up) after this age.
Under 18-year-olds are not able to invest money in their own name due to the legal regulations in the UK. However, parents and guardians can open a Junior SIPP (which you can read more about here) which allows minors to start saving for retirement early but the account is in the parent’s name until the minor reaches their 18th birthday.
Can I transfer my SIPP to my partner or spouse?
You can not transfer your SIPP to your partner, spouse or anyone else. Of course, there is nothing from stopping couples from selling investments held within the SIPP wrapper and transferring the cash to a partner although this will involve tax implications on the withdrawn cash.
One exception to this is when a married couple gets divorced. The SIPP assets will be divided up and apportioned between the couple in line with what’s agreed during the divorce. Generally speaking, all pension contributions made during the marriage are split equally by each partner.
Can I leave my SIPP in my will?
You can leave the investment held in your SIPP in your will. Prior to your death, you can select a family member, friend or charity to receive your SIPP. Typically this transfer does not have inheritance tax implications as other assets may. Beneficiaries can be selected within your platform’s settings.
As always, please remember I am an Accountant, but not your Accountant. In this post (and all of my others) I share information and oftentimes give anecdotes about what has worked well for me. However, I do not know your personal financial situation and so do not offer individual financial advice. If you are unsure of a particular financial subject, please hire a qualified financial advisor to guide you.
This article has been written by Luke Girling, ACA – a qualified Accountant and personal finance enthusiast in the UK. Please visit my ‘About‘ page for more information. To verify my ACA credentials – please search for my name at the ICAEW member finder. Please comment below or contact me here to get in touch with questions or ideas for future posts.
