SIPPs – take control of your pension – guide for directors

As a limited company director, you have more control over how you save for retirement than many employees who only use a workplace pension.

One option is a Self-Invested Personal Pension (SIPP).

A SIPP lets you take control of your pension investments, while also benefiting from tax relief.

What is a SIPP?

A SIPP offers significant flexibility in investment choices and in how you invest and withdraw funds.

You can choose from a wide range of assets to include in your SIPP, including stocks, bonds and funds. Some SIPPs also allow you to invest directly in commercial property.

A SIPP is designed for people who want greater control over their pension investments. For company directors, it also allows the company to make employer contributions directly into the pension.

Benefits of a SIPP for directors

Here are some of the key benefits of opening a SIPP

1. Tax relief on contributions

• Corporation Tax Relief: Pension contributions from your company are usually an allowable business expense, according to HMRC rules, provided they are made wholly and exclusively for the purposes of the trade. This reduces your company’s corporation tax liability.
• Personal Tax Relief: If you make contributions from your personal income, you can claim tax relief at your marginal income tax rate. Tax relief on personal contributions is normally limited to 100% of your relevant UK earnings for the tax year.
• Tax-Free Growth: Investment growth within your pension is generally not subject to UK income tax or capital gains tax. Withdrawals may be subject to income tax.

2. Gives you flexibility

• You can choose from a wide range of investments, which include:
  • Stocks and shares
  • Investment funds
  • Government and corporate bonds
  • Exchange-traded funds (ETFs)
  • Commercial property (available through some SIPPs, such as office space or warehouses)
• This flexibility lets you tailor your pension investments to your risk appetite and financial goals.

3. Most pension assets are protected (but you need to check!)

• Rights under registered pension schemes are generally protected from creditors in bankruptcy, although exceptions apply. This is separate from FSCS protection, which may apply if an authorised financial firm fails. FSCS protection varies by provider, investment, and circumstances, and does not protect you against ordinary investment losses.
• Unused pension funds are often outside the estate for IHT under the current rules. However, from 6 April 2027, most unused pension funds and death benefits will be brought into the estate for Inheritance Tax purposes. Transfers to a spouse or civil partner remain subject to the normal IHT spouse exemption.

4. More control over retirement planning

• You have considerable control over when and how you withdraw funds from your SIPP from the normal minimum pension age of 55 (rising to 57 from 6 April 2028), subject to pension and scheme rules.
• Withdrawal options include taking lump-sum payments, drawdowns, purchasing annuities, or a combination of these.

How to make contributions to your SIPP

1. Employer Contributions (Company Contributions)

• Your limited company can make an employer contribution to your SIPP.
• These contributions are usually treated as allowable business expenses, provided they meet HMRC’s wholly and exclusively test, reducing the company’s corporation tax bill.
• Company contributions are not restricted by your salary or relevant UK earnings in the same way as personal contributions, although the annual allowance and other pension tax rules still apply.
• Your company does not pay National Insurance Contributions (NICs) on employer contributions.

2. Personal Contributions

• You can also contribute personally from your post-tax income instead of company contributions. The pension provider normally adds basic-rate tax relief under relief at source, with any additional relief claimed where applicable. Tax relief is subject to the pension tax relief rules and your relevant UK earnings.
• Contributions are subject to the annual allowance (currently £60,000 per year for most people).

Pension contribution limits and allowances

• Annual Allowance: The standard contribution limit is £60,000 per tax year (as of 2026/27). The tapered Annual Allowance may apply if your threshold income exceeds £200,000 and your adjusted income exceeds £260,000.
• Carry Forward Rule: You can carry forward unused annual allowances from the previous three tax years, although you must have been a member of a registered pension scheme during the years in question, even if you didn’t make contributions.
• Lifetime Allowance (LTA): The LTA was fully abolished on 6 April 2024. There is no longer a Lifetime Allowance restricting the total value of pension savings, although limits remain on tax-free lump sums. The standard Lump Sum Allowance is £268,275, and the Lump Sum and Death Benefit Allowance is £1,073,100.
• Money Purchase Annual Allowance (MPAA): If you flexibly access taxable income from a defined contribution pension, you may trigger the MPAA. This can restrict future money purchase pension contributions to £10,000 per tax year, which matters if you plan to continue making substantial company contributions.

How to withdraw funds from your SIPP

You can start withdrawing funds from your SIPP at age 55 (57 from 6 April 2028), subject to scheme rules and any protected pension age. Your options include:

1. Take a tax-free lump sum: You can normally withdraw up to 25% tax-free, subject to your available Lump Sum Allowance. The standard Lump Sum Allowance (LSA) is £268,275.
2. Flexible drawdown: Withdraw as much or as little as you need. Taxable withdrawals are subject to income tax. Taking flexible taxable income can also trigger the £10,000 Money Purchase Annual Allowance.
3. Purchase an annuity: Convert your pension into guaranteed lifetime income.

Key considerations before you open a SIPP

1. You take on a degree of risk

• A SIPP can give you considerably more investment choice than many standard pension arrangements. If you choose your own investments, you are responsible for those decisions and their performance. If you’re not confident, you can seek financial advice or choose a pension that offers managed investment options.

2. How much does the SIPP platform charge?

• Some providers charge an annual fee based on the value of your pension pot. Others (such as ii) charge a low fixed monthly fee. The ii Core plan currently costs £5.99 per month for portfolios up to £100,000, with fund trades costing £3.99.
• Make sure you work out the real cost after the transaction and monthly fees are taken into account.

3. Changes to regulations and tax rules

• You need to stay up to date on any changes to pension rules, contribution limits, and allowances.

4. Do you have an exit strategy?

• Plan how and when you will start accessing your pension fund.

Steps to set up a SIPP

Setting up a SIPP is a surprisingly simple process:

1. Choose a SIPP Provider: Popular providers include Interactive Investor (ii), AJ Bell, Hargreaves Lansdown, and Vanguard. Read our guide to SIPP fees and charges before you do anything!
2. Decide on contributions: Decide how much you want to invest, either via your company or from your personal funds.
3. Choose your investments: Shares and funds are the most popular investments.
4. Review your investments regularly: Monitor your SIPP’s performance and make adjustments as needed.