UK Self-Invested Personal Pension (Account Options)

A Self-Invested Personal Pension (SIPP) is a common type of retirement savings vehicle in the UK. It doesn’t have a neat equivalent in the US – it’s kind of like a 401(k) but just for you.

Synopsis

A SIPP is very similar to a UK employer-provided pension, although won’t typically have employer contributions (it’s allowed, but I haven’t run into it much – welcome any examples in the comments).

Big caveat: Many tax professionals consider a SIPP a pension, and I’ve based the rest of this post on that judgment. However, others consider it a “foreign grantor trust”, which has much more complicated US tax filing requirements (forms 3520 and 3520-A) and PFIC limitations. You must be satisfied that a SIPP is a pension rather than a foreign grantor trust, or be willing to deal with the pain of the trust requirements – they probably aren’t worth the hassle except in specific circumstances.

  • In my layman’s reading of the US/UK tax treaty, I tend to agree that they are a pension rather than a foreign grantor trust, for what that’s worth (not much!)
  • Update 27Apr21: It’s also possible that a SIPP is a pension and thus tax protected from the US, but the IRS can impose informational filing requirements without taxing them (form 3520 and 3520-A). These forms don’t require you to pay anything to the IRS, but they’re pretty complicated and can be expensive to have a professional prepare. A tax professional I trust takes this view, so I’m inclined to agree – you get tax protection but onerous informational filing requirements.

Priority

If your employer pension has high fees, it’s probably better to use a SIPP after you maximize the match and max out a Roth IRA. Obviously, if you’re self-employed or otherwise don’t have an employer pension, a SIPP is the clear substitute – I’d probably still put it as a lower priority than the Roth, just since IRA fees tend to be lower, but it’s a tossup.

If you’ve got a good employer pension with low fees, there’s probably no point in a SIPP – they share the same contribution limits, anyway.

And if you’ve already brought your employer pension contribution up to equal your employer’s and are avoiding further contributions, a SIPP doesn’t make much sense – it’s the same argument about “foreign grantor trusts” that leads to the advice not to exceed your employer’s contributions that would also make a SIPP a pain.

Eligibility

All UK residents under age 75 are eligible to open a SIPP (even children). However, many UK providers don’t want to deal with US citizens due to the onerous requirements of the US government. There are some specialist expat providers, but they tend to have high fees and often active management.

I know for sure Hargreaves Lansdown will work with US citizens (I have my ISA with them) – if you know of others, please leave a comment and I’ll add them here.

Investment Options

The available options will depend on the provider, but will typically include a range of funds including index funds, target date funds, etc. You can also hold individual shares, if you want.

As long as you agree that a SIPP is a pension rather than a foreign grantor trust, the PFIC restrictions don’t apply and you’re free to hold mutual funds and ETFs.

Everything Else

All the other sections are the same as an employer provided pension.

Transfers from Pensions

You can use a SIPP as the recipient account for employer pensions, or other SIPPs. This is the same idea as rolling over a 401k to an IRA, to help you consolidate pensions from multiple old employers or move to a better/lower-cost provider.

Further Reading

MoneySavingExpert on SIPPs

2 thoughts on “UK Self-Invested Personal Pension (Account Options)

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