Pension versus SIPP - 7 questions to ask yourself

When Self-Invested Personal Pensions (SIPPs) became available back in 1990, they were seen as a niche product for high-net-worth clients. Now more than 1.7 million UK savers hold more than £205 billion in SIPPs¹ - proof that more people want greater control over their retirement savings.

But why are they so popular and how do they differ from other pensions?

All registered pensions offer tax relief on contributions, tax-free growth, and the option to withdraw 25% of your pot tax-free (up to the lump sum allowance of £268,275). What really sets them apart is who makes the investment decisions.

• A workplace pension is set up and managed by your employer, with automatic contributions and usually a limited choice of investment options.
• A personal pension is something you arrange yourself through a provider, offering a pre-selected range of investments typically managed on your behalf.
• A SIPP is also set up by you - but gives you much more control over how your money is invested. You can choose from a wider range of options, including funds, shares, and even commercial property.

So, if they offer similar tax benefits, why choose a SIPP? Here are seven questions to help you decide if a SIPP is right for you.

1. Are you employed, self-employed or currently not working?

Your employment status will almost certainly influence which pension is right for you. If you're employed, a workplace pension is usually the go-to. It’s automatically set up, your contributions come straight from your salary, and your employer contributes too - they may even offer to match contributions over and above the minimum 8% auto-enrollment rate (of which at least 3% must come from your employer and 5% from you). If you’re self-employed or not currently working, though, you won’t benefit from employer contributions - so a SIPP is one option to consider.

• Learn more about our award-winning SIPP

2. Are you retired or on a career break but still want to keep saving?

Even if you’re not working full-time anymore, you can still build your pension - subject to your pension allowances. Personal pensions and SIPPs both allow you to keep contributing and benefiting from tax advantages. A SIPP can be especially useful here, giving you the freedom to continue managing your investments in a way that suits your long-term goals.

• Learn more about your pension allowances

3. Have you maxed out your employer pension contributions?

Once your employer is contributing as much as they’re willing to match, adding more to your workplace pension won’t boost their payments. If you want to keep building your pot (and haven’t maxed out your annual allowance yet), a personal pension or SIPP gives you room to do so - with the same tax relief benefits. A SIPP may be especially appealing if you want to be more hands-on with how your additional contributions are invested (see question 6 for more).

• Learn more about annual pension allowance

4. Do you have several old pensions you’d like to bring together - and do you expect to collect more?

Job hopping is far more common than it was a generation ago. You may already have collected a few pensions. And you may collect a few more before you’re through. Moving your pensions together in a SIPP can make those pensions easier to manage, give you more control over how your money’s invested, and offer flexible options when it comes to taking an income.

• Learn about transferring your pensions
• Read about tracing old pensions

5. Are you getting close to taking tax-free cash or drawing an income and want more flexibility?

From age 55 (rising to 57 on 6 April 2028), you can usually take up to 25% of your pension tax-free. Most pensions allow this, but some workplace schemes are more limited when it comes to accessing the rest of your money. Personal pensions and SIPPs generally offer more flexibility. A SIPP, in particular, can give you more control over how and when you take income - whether that’s a regular drawdown or occasional lump sums.

• Learn about taking tax-free cash from your pension

6. Do you want a say in how - and what - you’re invested in?

Some people prefer a hands-off approach to investing, where the heavy lifting is done for them. If that sounds like you, a workplace pension or personal pension might be a good fit. They typically offer a selection of ready-made funds or default investment paths managed by the provider. But if you’d rather take control - choosing your own funds, shares, or even commercial property - a SIPP gives you a much wider range of options and puts you in the driver’s seat.

• Help with choosing investments

7. Are you close to a critical tax threshold and want flexibility to avoid it?

If you’re nearing the £100,000 personal-allowance taper (where every extra £2 of income costs you £1 of allowance) or the £50,270 higher-rate threshold, topping up a SIPP in the final days before 5 April has the potential to be quicker than arranging Additional Voluntary Contributions (AVCs) through payroll. By paying into a SIPP, you decide exactly when the money goes in - avoiding some of the back-and-forth that can be associated with setting up AVCs. Just remember to reclaim your higher-rate relief via your tax return afterward.

• Read: the hidden 60% tax rate – and how to avoid it.
• Learn more about the tapered annual allowance

Is it really a case of pension versus SIPP?

No, not at all. You can have one, the other or both.

If you’re working, it makes sense to make the most of your workplace pension - as many employers match contributions above the minimum auto enrolment level.

But if you want to take more control of your pension, bring together old pots, keep saving after you’ve retired or invest beyond your workplace scheme, you might want to think about opening a SIPP. 

• Learn more about opening a SIPP

Looking for more support? There’s always financial advice…

If you have £100,000 or more to invest (including pensions) and want a personal financial recommendation, our financial advisers can help. It all starts with a no-obligation, free chat to see if financial advice is right for you.

• Learn more about financial advice

The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.

Fidelity’s Retirement Service also has a team of specialists who can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.

• Read: 6 Steady Eddies for a stress-free retirement
• Read: The benefits of a blended approach to annuities and drawdown
• Read: Autumn Budget 2025: how might the government change pensions?

Sources:

¹ IFA Magazine - 21.12.23

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our transfer factsheet. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly recommend that you seek advice from one of Fidelity’s advisers or an authorised financial adviser of your choice. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.