SIPP vs personal pension

Taking out a pension is a great way to save for your future, especially as tax relief can boost your contributions. But, with several different types of pension available, understanding how they differ will help you pick the one that is right for you.  

Here, we explain how traditional personal pensions and SIPPs stack up. 

What is a SIPP?

A SIPP is a type of personal pension, following exactly the same rules outlined above. But, where the money you contribute to a traditional personal pension is usually invested in a range of funds, you have much more investment choice and flexibility with a SIPP. Hence the name – self-invested personal pension. 

You can choose to invest in a wide range of investments including funds, shares, gilts and, in some cases, even commercial property.

SIPPs vs personal pensions

The similarities and the differences between SIPPs and personal pensions.

SIPP vs personal pension - which is cheaper?

The answer to that one used to be easy as SIPPs tended to be more expensive than the simpler personal pension. However, over the years, charges have dropped on SIPPs and can even work out more cost-effective if you have a large pension fund. 

When comparing SIPPs and personal pensions, you are likely to see different charges. 

On a personal pension, you will usually be charged an annual management fee, which is a percentage of your pensions value, plus switching charges if you want to change the funds you invest in. 

SIPP charges vary between providers and could include set-up charges, platform charges, annual administration charges and dealing fees for investing. How much you end up paying will come down to how you want to run your SIPP, so make sure you compare costs before picking a provider.  

Ultimately, if you would like the investment choice and flexibility offered by a SIPP, you will probably be happy to pay a little more for it. 

SIPP vs personal pension - which is easier to run?

The more limited investment choices mean a personal pension is probably easier to run, but you could adopt a hands-off approach with a SIPP if you wanted. Rather than track your SIPP investments yourself, trading in and out of shares, you could select funds or even hire an investment manager to look after your portfolio for you.   

However, one of the key reasons people take out SIPPs is for the investment choices they offer. Being able to select from a really broad investment universe, even adding in more unusual investments such as farmland and prisons, makes saving for retirement that bit more interesting and exciting.  

SIPP vs personal pension - which will give me a bigger pension?

Absolutely impossible to say. Investing in individual shares is potentially higher risk than putting your money into a well-diversified fund through a personal pension. But that risk can deliver higher returns as well as larger losses. 

Charges can also nibble away at performance, with SIPPs offering a greater opportunity to rack up higher fees. However, if those fees get you better performance, then they are worth paying for. 

Should I have a SIPP or a personal pension?

The choice is entirely up to you but we do find that the investment flexibility offered by SIPPs means they are more suited to someone who is interested or experienced in selecting their own investments. 

A personal pension can be a good option if you are starting out on your investment journey or you do not want the responsibility of making these choices. 

Can I transfer a personal pension to a SIPP, or vice versa?

If you pick the wrong type of pension or your approach to investing for the future changes, it is not an issue. It is easy to transfer a personal pension to a SIPP if you want the additional investment choice and flexibility. Or move a SIPP to a personal pension if you find you do not need all the options. 

Simply contact your new pension provider and they will be able to arrange the transfer on your behalf. 

Can I get help to decide between a SIPP and a personal pension?

Having the right pension can make a difference to the way you feel about saving for your future. If you want help deciding between a SIPP and a personal pension, we recommend seeking professional financial advice. An independent financial adviser will be able to assess your circumstances and recommend the most appropriate pension for you.