SIPP vs ISA: which is better?


SIPP vs ISA: increasing numbers of savers are wondering which option leaves them better off. Both schemes offer flexible, tax-efficient ways to save. But finding the scheme that works best for you depends on whether you want to save for the mid-term, the long-term or both.

Firstly, a summary of the key differences of SIPP vs ISA. Following that we will compare some of the key features of each saving scheme in more detail.

What are the key differences of SIPP vs ISA?


  • Your money is locked away until you are aged 55
  • Savings contributions are effectively tax-free, with 25% of the value of your fund also available as a tax-free lump sum
  • You can invest up to £40,000 per year
  • You can invest in funds, companies, loans and commercial property.


  • You can withdraw your money anytime
  • You will pay no tax on the interest you accumulate
  • You can invest up to £20,000 per year
  • Invest in funds, companies and loans.

What is a SIPP (self-investment personal pension)?

A SIPP is a type of personal pension plan. It’s used to build a tax-efficient retirement fund for your future. They give you a lot of investment flexibility and your returns depend on the success of the projects you choose to invest in. SIPP schemes are set up and managed by specialist SIPP operators or financial institutions such as wealth management companies or banks. Your employer can contribute to your pension and make payroll deductions on your behalf.

What is an ISA (individual savings account)?

ISAs allow you to build a pot of savings that you can withdraw tax-free. The biggest difference between investment ISAs and SIPP schemes is that with ISAs it’s far easier to access your savings if you need money for a rainy day or unexpected emergency.

There are two main types of ISA:

  • Cash ISA – like a normal savings account, but the interest you accumulate is tax-free
  • Investment ISA – a stocks and shares ISA allows you to invest in individual companies, funds and bonds

(There are other types of ISA including Lifetime ISAs and Help to Buy ISAs. For the purposes of this article we will focus on cash ISAs and stocks and shares ISAs).

How easy is it to access your funds?

One of the biggest differences with SIPP vs ISA is access to your savings. With a SIPP you cannot access your money until you are 55 years old. ISAs have no such restrictions. You can withdraw your funds at any time – although you may incur a small penalty for withdrawing money if you are on a fixed-term scheme.

What are the tax advantages?

The tax implications between SIPP schemes and ISA’s differ but both are tax-efficient ways to save. With a SIPP your savings contributions are essentially tax-free. When it comes to withdrawing from your fund, you will pay no tax on the first 25% of your pot. The rest will be taxed as income at your marginal rate. With ISAs you don’t pay any tax on money you withdraw.

Essentially ISAs tax money on the way in, SIPPs tax money on the way out. For most savers a SIPP will work out as the most tax-efficient option, especially if you are a higher rate taxpayer.

How much can you invest?

If you have a good chunk of spare cash to save, a SIPP is likely to be the preferable option. ISAs have a maximum annual allowance of £20,000, while SIPPs allow you to invest up to £40,000 – although the SIPP allowance depends on your earnings.

What can you invest in?

Both options offer lots of flexibility. Cash ISAs are similar to savings accounts and will advertise the rate of interest you can earn. A stocks and shares ISA allows you to invest in your choice of companies, funds and bonds. The same is true for SIPPs, which have the added benefit of allowing you to invest in commercial property and land.

What returns can you expect?

Currently, most cash ISAs are offering returns of 0.5% – 1%. Returns from stocks and shares ISAs as well as SIPP schemes vary depending on the success of your investments. Typical returns are around the 4-5% mark, although there can be a lot of fluctuation.

How much do the schemes cost?

The administrative charges for SIPP schemes tend to be higher than those of stocks and shares ISAs. That’s because there’s more work and complexity involved for the SIPP provider. The majority of cash ISAs are free to open and maintain.

Want some advice?

Of course, every saver wants to make their money work as hard as possible for their future. We are experts in wealth management and retirement planning – and can give you the clear advice you need to put your savings on the right track. Here are a few words on what to expect from our service.

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James Priday

This article was written by James Priday

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