A GP earning £118k can lose 60% of additional income to tax, but pension contributions via a SIPP can pull them out of the trap. A SIPP is just a wrapper, like a suitcase, that holds index funds, ETFs, shares, bonds, or cash and reduces your taxable income.
Now, a GP reached out to me on LinkedIn after watching my video here titled SIPP vs ISA. She was earning around £118K in adjusted net income, which means she was sitting squarely into one of the most painful tax of the UK system, the 60% tax trap. This is why some doctors work harder, do extra sessions, then wonder why they don't feel much better off. The money is leaking before they ever get the chance to even touch it or invest it. Pension contributions can actually help to reduce your adjusted net income and bring you out of the 60% tax trap. And if this GP had plowed a pension contribution before using the ISA, the outcome might have looked very different. Same £20,000, same discipline, potentially the same investment, but different wrapper, different outcomes. So SIP is basically Self-Invested Personal Pension. It's a pension wrapper that gives you more control over how your pension money is invested. So different from the NHS pension. But this is where many doctors get confused. A SIP is not an investment. A SIP is basically the container. Think of it like a suitcase. Inside that suitcase, depending on the provider, you may be able hold different things. Might be able to hold index funds, might be able to hold ETFs, might be able to hold investment trust, shares, bonds, and cash. And with some providers, might even be able to hold commercial property. Investment sits inside the SIP, okay, just like in your ISA. ISA is not necessarily an investment either. This is really something that is important to understand. Now again, it's important to see why SIPs can be really, really powerful and why you should understand them.
