Would you be better off with a DIY pension?

A total of 865,407 savers opened a self-invested personal pension in 2023, according to new data from the Financial Conduct Authority.

This marks the third year in a row that sales of Sipps have exceeded 850,000, after they dipped to below 740,000 in 2020.

So what's behind their growing popularity? Here we explain how a Sipp can give you more control over your retirement savings and how to choose the right company for you.

• Find out more: Best Sipps 2024

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What sets Sipps apart

Sipps are similar to other defined contribution pensions in that the amount you’ll receive when you retire depends on how much you contribute, how well the underlying investments perform and how you decide to access your money. 

Like other pensions, you get tax relief on your contributions. For every 80p basic-rate taxpayers add to their pension, the government pays an extra 20p. If your tax rate is higher than 20%, you can claim extra tax relief. Tax relief applies to annual contributions up to your salary or £60,000, whichever is higher.

The big attraction with Sipps is that you can choose your own investments. They can also work out cheaper than other types of pension.

Our latest analysis focuses on low-cost DIY Sipps, offered by investment platforms. In general, DIY Sipps give you access to a wide range of assets and investment options, but in some instances, you can only invest in funds, not individual shares.

• Find out more: how much will you need to retire?

Accessing your Sipp

You can consolidate all your pensions into a Sipp, or hold it alongside any existing workplace schemes. Contributions and investment performance will determine the final value of your pot at retirement. 

As with other pensions, when you reach the age of 55, you can take up to 25% of your pot as a tax-free lump sum from your Sipp. 

You can then take the rest of it in cash, too (either in one go or in chunks), use some or all of your pot to buy an annuity, which gives you a guaranteed income for life, or keep some money invested and take an income as you wish – this is known as pension drawdown. 

• Find out more: options for cashing in your pensions

Pay attention to charges

Fees for a DIY Sipp will generally be lower compared with an advised personal pension or a workplace scheme, although unlike these types of pension you won’t benefit from the support of an adviser or the board of trustees managing your money.

You’ll still need to pay attention to the fees charged by your Sipp, however, as some providers are more expensive than others.

Our calculations show that a Sipp with a starting value of £250,000 would be worth £18,000 more after 10 years if held with the cheapest provider (Freetrade) than the most expensive (Wealthify), assuming annual investment growth of 3%. After five more years of charges and compound growth, the difference is more than £31,000.

Sipps typically charge a fixed admin fee or a platform fee calculated as a percentage of the funds you have invested. Companies apply percentage platform charges in two ways – either across the whole pot depending on the pension value or reduced fees on amounts above certain thresholds. 

For example, AJ Bell charges 0.25% on the first £250,000 of funds, 0.1% on the next £250,000 and no charge on funds over £500,000.

• Find out more: Sipp charges compared

Is a Sipp right for you?

There are lots of reasons why this type of pension might appeal to you, including lower charges and the convenience of being able to bring together different pension pots in one place.

But a Sipp isn't suitable for everyone. They're best for savers who feel comfortable choosing and managing their own investments. 

If you are less confident with investments but are still interested in a Sipp, you could consider paying a financial adviser to do the heavy lifting for you. 

Alternatively, ready-made portfolios, offered by some investment platforms and pension startups, are a good option if you want personalised help with investment decisions, but don’t want to incur the expense of full financial advice.