SIPP in 2025: Understanding the changes to pension rules and how they affect you

Unlike traditional pensions, SIPPs are self-invested, meaning that you have full control over your retirement savings and have the freedom to choose your investments.

While standard pensions can come with limits to investment options to a set of pre-selected funds, self-invested personal pensions open the door to a vast array of investment options like company shares, investment trusts, and even commercial property.

However, SIPPs, like all other forms of pension, are still liable to change from tax year to tax year, and governmental changes can carry a significant impact on your savings.

When Chancellor Rachel Reeves announced Labour’s first budget for more than 14 years, many pension holders expected changes to impact the way they held their investments. But how have pension rules changed in the 2025/26 tax year? And how could they impact your SIPPs? Let’s take a deeper look at the changes to be aware of with your retirement in mind:

Inheritance Tax (IHT) Considerations

Changes to inheritance tax were one of the biggest pension shakeups from Rachel Reeves in Labour’s Autumn Budget.

For the current tax year, your defined contribution pensions aren’t considered part of your estate, meaning that there would be no inheritance tax to pay. However, from the 6th of April 2027, you’ll be liable to pay inheritance tax at the standard rate of 40%.

While this seems like an alarming change for many SIPP savers, it’s worth noting that everyone has a nil rate band of £325,000 that can be left free of any IHT. Even if your SIPP is currently higher than this figure, it’s likely that you’ll spend much of your pension in retirement before leaving the remaining funds for your family.

However, government estimates suggest that 10,500 estates will pay inheritance tax for the first time as a result of the changes to rules on IHT and pensions, while 38,500 will ultimately pay higher rates of inheritance tax.

If you own your home, then this may ultimately push the value of your assets higher as part of your estate, meaning that you could incur the 40% inheritance tax threshold when you die.

For SIPP holders, IHT changes can prompt a significant change to how you manage your investments ahead of your retirement. This is particularly true among the many business owners and self-employed individuals who have the ability to invest more into their pensions than others.

Crucially, it’s important to remember that transfers between spouses and civil partners will remain tax-free. This means that IHT will only come into play on the second death. With this in mind, your SIPP investment can remain safe from the clutches of the taxman provided that you have a partner who’ll receive your pension funds should you die with a windfall large enough to trigger IHT.

Alternatively, it’s worth keeping your nil rate band in mind and ensuring that you spend your SIPP sufficiently once you reach retirement age.

Navigating the Pension Schemes Bill

In June, the government also announced its Pension Schemes Bill, which has been devised to tackle the issues caused by smaller pension pots that can be difficult for savers to consolidate effectively.

With an estimated 20 million workers set to be affected by the changes, the Pension Schemes Bill will consolidate the many small pensions that workers build up as they move between jobs, helping to streamline the management of different pots ahead of retirement.

For self-invested personal pension holders, the bill can be a positive mechanism for uniting your old pension funds to help bolster the amount of savings you have to reinvest in your pot. As a result, this can help to provide you with more control over your retirement fund.

The Rising Retirement Age

Another key change for SIPP investors to navigate is the rising retirement age for UK workers, which is set to increase from 55 to 57 from April 2028.

This means that the minimum age you need to be to access your pension pot if you’re born on or after the 6th of April 1973, you’ll need to wait until you’re at least 57 years old before you can make a withdrawal from your SIPP account.

As a result, you must adapt your retirement planning accordingly. Here, calculating pension returns for a retirement at age 57 or after can help you to better understand the amount of money you can access.

You can also adapt your SIPP approach to maintain an appropriate level of risk appetite for longer.

As many savers approach retirement age, it’s common to lower their risk tolerance to ensure that their funds aren’t as vulnerable to market fluctuations. With the age in which you can access your pensions increasing, it’s important to reassess your strategy to ensure you have the retirement that you expect.

Supporting Your Retirement

Pension rules are liable to change on a regular basis, so it’s important to always maintain an adaptive approach to saving money for the future.

With this in mind, it always pays to ensure that your SIPP consists of a resilient investment plan that’s capable of absorbing future alterations to inheritance tax and the UK retirement age.

In building your pension pot with confidence for your retirement, you can enjoy later life, safe in the knowledge that you’ll be financially strong enough no matter what tomorrow may bring.