Updated: May 13, 2019

Workplace Pension vs. SIPP?

Should you open a SIPP or rely on your workplace pension? Find out what is the best option for your retirement in this guide

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Tony Stevens

Author: Tony Stevens - Finance Expert

Updated: May 13, 2019

“Workplace pension or SIPP?” it’s a question that we hear quite often. Actually, it’s not an ‘either/or’ choice, there are instances in which you could have both a workplace pension and a SIPP. There are also instances in which a workplace pension can be a SIPP.

Confused? Don’t be. In this article, we’re going to demystify things. You’ll learn the difference between SIPPs and the various kinds of workplace pensions. You’ll also learn the pros and cons of each, plus some ways to see if a SIPP or workplace pension is right for you.

Here’s what you’ll learn in this article

What exactly is a workplace SIPP?

A ‘workplace SIPP’ is a type of ‘group SIPP’ held by an employer for its employees.

A group SIPP is essentially a collection of individual pensions. Workplace SIPPs are a popular example of group SIPPs in action – but are by no means the only kind of group SIPP you may come across.

Group/workplace SIPPs take all the benefits of a SIPP (such as increased flexibility and investment choices) – combining them with the economies of scale (mainly discounts and greater access) that are gained from investing through a collective.

Workplace SIPPs are sometimes offered to select members of a company, such as senior management – who may have may have more complex financial needs. Some companies offer both a workplace SIPP and a more conventional workplace pension.

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SIPP vs workplace pension – which is right for me?

That depends! Considering that the term ‘workplace pension’ can be also used to describe a ‘workplace SIPP’, it’s worth being clear on exactly what kind of arrangement the scheme actually is.

It could be…

  • A SIPP: Typically a group SIPP, held by everyone in the workplace – more about this below.
  • A defined benefit scheme: A scheme in which your retirement income is paid directly by your previous employer, as opposed to the return on your investments. These are far less common nowadays but still prevalent in the public sector.
  • A personal pension scheme / personal pension plan: Not dissimilar to a SIPP, though a SIPP typically offers more investment choices.
  • A stakeholder pension: The simplest form of pension scheme – designed for investors who want things as simple as possible. They are cheap, but offer limited investment options.

Can I have a SIPP and a workplace pension?

Yes, and many people do. Workplace SIPPs are much less common than conventional workplace pensions and, as a result, many people hold a private SIPP along with their workplace pension.

How do employer contributions to a SIPP work?

Broadly speaking, there are two examples.

In the first instance, you hold a workplace pension and a SIPP. When you change roles, you move the balance of your workplace pension into your personal SIPP. You then have a new workplace pension at your new employer, whilst retaining your personal SIPP.

In the second instance, you hold a workplace SIPP – both you and your employer pay in, but the onus is on you or your advisor (and not your employer) to direct your investments.

Can my employer contribute to my SIPP?

As you can see from above they can, but it’s not usually the case – seeing as workplace SIPPs are one of the rarer forms of workplace pensions.

Put simply – employers pay into a SIPP if it’s a workplace SIPP  – but not usually if it’s your personal SIPP.

Can I transfer my work pension to a SIPP?

Yes, and many people do. Like in the example above, many people move their workplace pension to SIPP once they change roles at their company.

Alternatively, it’s possible for your current employer to transfer your ‘active’ work pension into a workplace SIPP – but this is a decision that the company would have to make, not you.

Do SIPP employer contributions get tax relief?

Yes. SIPP employer contributions benefit both you and your employer.

For limited companies, employer pension contributions to a SIPP can be used to offset corporation tax, and for sole traders and partnerships, they can be offset against income tax.

From the perspective of the employee, employer’s contributions to a SIPP are not taxed – which means more money for your pension, and less for the taxman.

You can read more about SIPP taxes here.

NEST or SIPP? Which is best for me?

SIPP vs NEST – the comparison is a little ‘apples and oranges’. Whereas a SIPP is a type of pension wrapper, NEST (The National Employment Savings Trust) is a specific provider of workplace pensions.

As before, the choice between a NEST pension or SIPP will probably come down to how much control you want.

A SIPP may appeal to a more hands-on investor, as it has access to more asset classes. NEST pensions typically allow you to choose from a smaller range of funds, and may work out to be cheaper.

Talk to a pensions expert about SIPP vs. workplace pension today

If you have questions about SIPPs or workplace pensions and want to speak to an expert for the right advice, call Online Money Advisor today on 0808 189 0463 or make an enquiry here.

Then sit back and let us do all the hard work in finding the pension advisor with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

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Tony Stevens

Tony Stevens

Finance Expert

About the author

Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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