Paying into a SIPP? Make sure you’re prepared for this £140,000 self-employment trap
SIPPs can be useful for self-employed Brits looking to build pension wealth. Learn two costs that could leave you £140,000 better or worse off based on how you manage yours.
There are many benefits to being self-employed, such as freedom, flexibility, and acting as your own boss.
At the same time, various financial pitfalls mean you may need to watch your step more than the average saver.
Financial Planning Today finds that some self-invested personal pension (SIPP) holders could be close to £140,000 worse off due to unclaimed tax relief and platform and service fees.
SIPPs can be useful tools for self-employed individuals looking to build pension wealth on their terms. However, SIPPs may require a hands-on approach to maximise your savings.
Keep reading to learn more about the two most costly traps to avoid, as well as how a financial planner can help you stay on top of your SIPP savings.
SIPPs help self-employed savers gain more control over their pension wealth
As a self-employed saver, you have greater freedom of choice when it comes to personal finance, especially regarding how you generate, structure, and allocate your income.
This extends to your pension. Rather than being automatically enrolled into a workplace pension, you can choose your own product and provider. Or, you might opt for a SIPP.
A SIPP is a type of defined contribution (DC) pension that allows you to dictate how your pension fund is allocated across asset types, markets, and locations.
You might have access to more pension options than a typical employee in their workplace pension, including:
- Directly changing your pension contributions
- Choosing your level of control, whether actively managing your SIPP or opting for a hands-off approach.
Greater control over your pension means you might have increased opportunity for growth or the chance to align your investments with your values. At the same time, the level of responsibility might mean you are more vulnerable to potential mistakes.
2 mistakes that could cost you almost £140,000 as an unprepared SIPP saver
- Unclaimed tax relief
Pensions are valuable tax wrappers, but it’s important to ensure you claim all the relief you’re entitled to.
According to Financial Planning Today, a higher-rate taxpayer contributing £500 a month to a SIPP over 30 years might accumulate £107,045 less in retirement savings if they fail to claim and reinvest their additional tax relief, assuming no platform fees.
It’s important that you claim your qualifying relief before it resets each tax year so you can make fast and effective progress towards your goals.
Personal pension contributions can normally receive tax relief on up to 100% of your earnings. You can claim pension tax relief on contributions up to the Annual Allowance, which is £60,000 for the 2026/27 tax year, although this may be lower depending on your circumstances.
While 20% relief is applied automatically to your SIPP, higher- and additional-rate taxpayers generally need to claim any further relief they’re entitled to. This also applies to private DC pensions operating under a relief at source arrangement.
You can make this claim through Self Assessment or directly from HMRC if you don’t complete a tax return.
- Service and platform fees
You can choose your own investments within a SIPP or opt for a ready-made portfolio aligned with your attitude to risk. The latter reduces the need to select and manage individual investments yourself, which can make the process easier and less stressful.
In return, SIPP providers charge fees for their services.
These fees are usually to cover the administrative, operational, and investment costs of running your pension pot.
Unlike default investment arrangements in certain qualifying auto-enrolment pension schemes, where certain charges are capped at 0.75%, SIPPs are not subject to the same limit. In fact, fees for ready-made or managed SIPPs can reach or exceed 1% a year.
Even small fees can add up over time. According to Financial Planning Today, a 0.25% platform fee costs savers £18,000 over 30 years. This figure rises to £31,900 at 0.45%.
Failing to consider the cost of platform fees now could mean you miss out in the long term.
SIPPs aren’t suited for all self-employed savers. Discuss your ideal pension strategy with your Kellands financial planner.
Maximise your pension savings with your Kellands financial planner
While a SIPP comes with greater freedom and financial control, it also requires substantial set-up and ongoing management to make sure you are achieving as much as you can from it.
This can be difficult to manage alongside a busy work schedule, particularly if it requires learning complicated tax planning and investment processes.
With a financial planner, you have ready-made access to expert guidance. We can help you:
- Set up your SIPP portfolio, tailoring investment choices based on your retirement goals, circumstances, and attitude to risk
- Choose the right platform to keep fees low by selecting the best low-cost provider or spreading your SIPP investments across multiple platforms
- Provide ongoing tax efficiency solutions and ensure you are claiming all qualifying relief to help you achieve your goals sooner
- Consolidate pension pots (if it’s right for you) to minimise hidden charges and maximise investment returns
- Tailor SIPP withdrawal strategies when you’re ready to retire so your retirement income remains tax-efficient.
If you’re concerned you’ve fallen into the £140,000 self-employed pension trap, reach out to our award-winning team today to set up a review.
Email us at hale@kelland.co.uk or call 0161 929 8838.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.