Self-invested
Personal Pension

Let’s say you retire at 65 with £500,000 in your pension and you need £20,000 to pay off the final part of your mortgage. To do this, you carve out an £80,000 portion of your pension and withdraw 25% of this, which is £20,000. The remaining £60,000 is set aside as taxable income that still has a chance to grow.

Can you repeat this process as many times as you like for different amounts until you’ve reached your overall 25% allotment, which in this case would be £125,000.

When you pay into a pension, you qualify for tax relief on those contributions. The amount you get depends on your tax rate. As a basic-rate UK taxpayer, you’ll receive tax relief at the same rate, but the way it works can seem a bit confusing at first, so here’s a straightforward example:

Let’s say you want to add £100 to your pension. To do this, you pay £80, and the government adds £20 as tax relief. Your pension scheme claims this from the government, so effectively, you get a 25% tax credit.

If you pay higher-rate income tax (40%), you can claim up to a further 20% in tax relief through your annual self-assessment tax return. This is paid to you (or reduces your tax bill) rather than to your pension, and you could then pay this tax refund into your pension. The same applies to additional-rate (45%) taxpayers, who can claim back a further 25%.

Scotland has different tax rates from the rest of the UK, so if you’re a Scottish taxpayer, the amount of tax relief you can claim is different, but the process works in the same way.

Tax rates and rules can change over time, and the relief you receive depends on your personal circumstances.

There’s no limit to how much you can pay into your pensions in any one tax year, but there is a limit to how much you’ll receive tax relief on. You can pay in up to 100% of your annual earnings or £60,000, whichever is lower, and get tax relief. This limit is known as the ’annual allowance’ and is set by the government.

Higher earners have a reduced annual allowance, known as the ‘tapered annual allowance’. This applies once your earnings exceed £200,000 and your ‘adjusted income’ exceeds £260,000. It means your annual allowance decreases by £1 for every £2 you earn above £260,000. The minimum tapered annual allowance is £10,000, and this kicks in once your adjusted income reaches £360,000.

If you don’t have any taxed income, you, or someone else, can still pay into your pension and get tax relief. The amount contributed is limited to £2,880, which, together with the basic rate tax relief, totals £3,600.

If you haven’t used your full annual allowance in any tax year, you can carry forward the unused part from up to the previous three years. In the tax year you want to use that carry forward part, you must have used all your annual allowance and then have sufficient ‘relevant UK earnings’ to cover the carry forward amount too.

Contributions are made via the CMC Invest app using your registered debit card. Simply log in, tap on the SIPP account from the home page and then on the ‘Add cash’ link.

Yes, you can. Most types of pensions can be transferred to your CMC Invest SIPP, including pensions you’ve already taken benefits from.

If you’re thinking about transferring a current workplace pension, please make sure your employer will continue to make contributions to your SIPP, you would be deemed to have ‘opted out’ of the workplace scheme, and those contributions would be lost. You should also check that the pensions you’re thinking of transferring don’t have any benefits (like the right to access them early, or enhanced benefits) that could be lost when transferring.

‘Defined benefit’ workplace schemes are not as common as they used to be, but if you do have one, or a pension with ‘safeguarded benefits’, you would lose those when you transfer. This is generally not considered to be in your best interests, so you are required to get financial advice from an authorised firm confirming a pension transfer is recommended for you before we can accept it.

In most cases, you can’t access your pension early. This is because the government has set the normal minimum pension age at 55. However, you may be able to do so if you are diagnosed with a serious illness, typically meaning you have less than 12 months to live.

Some pension schemes used to have a protected pension age lower than 55. This typically would have been removed before 2006, though, and usually only applied to sportspeople and entertainers, where their career meant that they retired at an earlier age. However, this doesn’t apply to SIPPs. If you have a lower protected pension age with a pension you’re considering transferring to a SIPP or another personal pension, you would lose this benefit when transferring.

The state pension age for men and women is currently 66 for those born between 6 April 1954 and 5 April 1960. This is the earliest you can take your state pension, but you can choose to defer taking it until a later date and then get an uplift in your pension when you do. The state pension age is due to rise to 67 in 2028.

From 6 April 2024, the Lifetime Allowance (LTA) disappears and is replaced by three new allowances.

The Lump Sum Allowance (LSA) limits the tax-free cash you can take from your pension to a maximum of £268,275.

The Lump Sum and Death Benefit Allowance (LSDBA) is the limit on tax-free withdrawals from your pension you can get in your lifetime via a Serious Ill Health Lump Sum and when you die. This is set at £1,073,100.

If you have taken tax-free cash from a pension before 6 April 2024, your previously used LTA percentage will be converted into a reduction in both the LSA and LSBDA. If you exceed the LSA or the LSDBA, the excess will be taxed at your marginal rate.

The other new allowance is the Overseas Transfer Allowance (OTA) for those transferring their pension abroad. This is set at £1,073,100.

If you have previously taken benefits from your pension, transferred your pension overseas or have reached age 75 and not received 25% of your previously used Lifetime Allowance as tax-free cash, you may be able to apply for a Transitional Tax-Free Certificate.

Further information can be found by visiting the Money Advice Services website.

Whilst CMC Invest provides investment and execution services, we are not an investment advisor or a regulated pension provider. We’ve teamed up with Quai Investment Services Limited, which is an experienced pensions and SIPP provider. Quai provides the underlying pension service while CMC Invest provides the mobile app and account for managing your SIPP and the investments within it.

Yes, CMC Markets Investments Limited (registration number 948126) is fully authorised and regulated by the Financial Conduct Authority (FCA) in the UK. Retail client money is held in segregated client bank accounts, and money held on behalf of clients is distributed across a range of major banks, which are regularly assessed against our risk criteria.

Yes, your eligible deposits with CMC Markets are protected up to a total of £120,000 by the Financial Services Compensations Scheme (FSCS), the UK's deposit guarantee scheme. If CMC Invest ever went into liquidation, retail clients would have their share of segregated money returned, minus the administrator's costs in handling and distributing these funds. Any shortfall of funds up to £120,000 may be compensated under the FSCS.

Under the FCA's client money rules, we're required to segregate client money from our own funds (unless you agree with us otherwise). The money held in segregated bank accounts does not belong to us and will be held in a way that enables it to be identified as client money. Learn more about client money regulations.

In the UK, you won’t need to pay capital gain tax (CGT) on any profits you make from selling investments, and dividend tax on income you receive from companies in your stocks & shares ISA and self-invested personal pension (SIPP). Any profits and dividend income to your general investment account is taxable and will be shown in your ‘Consolidated Tax Certificate’, provided to you following the end of each tax year. Tax treatment depends on your individual circumstances and may be subject to change in the future.

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