UK SIPP projection with tax relief.
SIPP pot at retirement
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Gross annual contribution
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Higher-rate refund (claim via SA)
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How a SIPP turns net pay into gross savings
A Self-Invested Personal Pension gives you the same tax relief as any personal pension, but with the freedom to pick your own investments. The mechanics are what make it powerful. When you pay in from taxed income, the provider claims 20% basic-rate relief on your behalf and adds it to the pot automatically, a process called relief at source. So £100 of your money becomes £125 inside the SIPP. This calculator applies that grossing-up, then compounds the gross contribution over your chosen term and return, and shows the 25% tax-free lump sum you can take at retirement.
£10,000 a year for 25 years
Take the defaults: £10,000 a year from net pay, a 40% marginal rate, 25 years, and 6% annual growth. The provider grosses each contribution up to £12,500. Compounded as a regular annual investment at 6% for 25 years, the pot reaches about £685,806. A quarter of that, roughly £171,452, is available tax-free from age 55, rising to 57 from 2028. Separately, because you are a 40% taxpayer, you can reclaim a further 20% higher-rate relief through Self Assessment, worth £2,500 on each year's contribution.
| Item | Figure |
|---|---|
| Your net contribution each year | £10,000 |
| Grossed up in the SIPP (× 1.25) | £12,500 |
| Higher-rate refund via Self Assessment | £2,500 |
| Projected pot after 25 years at 6% | £685,806 |
| Tax-free lump sum (25%) | £171,452 |
The curve steepens sharply in the final decade. That is compounding doing the heavy lifting: most of the pot's value is built in the last third of the term, which is precisely why starting early beats contributing more later.
The relief you have to ask for
This is the single most expensive mistake higher-rate savers make. The basic-rate 20% lands in the pot automatically, but the extra higher-rate or additional-rate relief is not given by the provider. You must claim it, either through your Self Assessment return or by writing to HMRC. Miss it and you have left real money on the table: £2,500 a year in our example, every year. You can usually claim up to four tax years back, so if you have been paying into a SIPP and never claimed, it is worth a letter to HMRC.
Annual allowance and carry-forward
You can normally pay in up to £60,000 a year across all your pensions and still get relief, capped at your relevant earnings. If you have not used the full allowance in the previous three tax years, carry-forward lets you mop up the unused amounts in a single bumper year, useful after a bonus or a good trading year. Two cautions. Very high earners can see this £60,000 tapered down, and the tax-free lump sum is itself capped by the lump sum allowance, currently £268,275, which the £171,452 in our example sits comfortably under.
Can I open a SIPP if I already have a workplace pension?
Yes. You can run a SIPP alongside an auto-enrolment workplace pension. Keep contributing enough to the workplace scheme to capture the full employer match first, since that is free money, then use the SIPP for extra savings and wider investment choice.
What return assumption is sensible?
The 6% default is a reasonable long-run nominal figure for a growth-tilted portfolio, but it is not guaranteed and ignores inflation. For a more conservative plan, try 4% to 5%, and remember platform and fund fees of perhaps 0.25% to 0.45% a year eat into the headline return. Model a lower figure if you want a margin of safety. It is also worth running the projection twice, once at your target return and once a couple of points lower, so you can see how sensitive the final pot is to a single assumption. On a 25-year horizon, dropping the return from 6% to 4% does not just trim the result, it can change the pot by hundreds of thousands of pounds, which is sobering and useful to see before you set a contribution level.