Workplace Pensions vs SIPPs

Should you have a workplace pension or a SIPP? It isn’t always an easy answer and it can depend on a whole range of factors, from your employment status to your risk appetite, but the good news is that it doesn’t need to be an either/or decision. In fact, there’s no reason you can’t have both, and there may be some instances where a workplace pension can be a SIPP.

There’s a lot to think about, but this guide will take you through everything so you can confidently decide whether a SIPP or workplace pension – or both – is right for you.

Is a SIPP better than a workplace pension?

Not necessarily, as it all comes down to your own personal preferences and financial goals.

For example, typical workplace pensions may be more suited to those who prefer the convenience of having someone else take charge of their investments, and who may have a lower risk appetite so would rather stay in more mainstream funds. Plus, there’s also the benefit of employer contributions, something that should never be overlooked.

Conversely, SIPPs can be ideal for those who like to be in control thanks to the greater level of flexibility offered by this arrangement. They’ll have the chance to invest in a wider range of asset classes offering the potential for greater returns, but this also comes with greater risk, so it’s important to strike the right balance.

An independent pensions advisor would be best-suited to help you understand whether a workplace pension or SIPP would be most appropriate for your needs, as there’s no clear-cut answer. Though there may be one exception.

What if you’ve got a defined benefit scheme?

Most workplace pensions are defined contribution schemes, and as such don’t offer many advantages over SIPPs. But if you’re part of a defined benefit pension scheme – otherwise known as a final salary scheme or a Career Average Revalued Earnings (CARE) scheme – it’s a little different.

Defined benefit schemes usually pay out a retirement income based on how many years you’ve been part of the scheme and your pensionable pay (usually your final salary at the point you retire) and the accrual rate of the scheme. Others take a career average salary and base your payments on that. Either way, you get a guaranteed income for life that rises with inflation, which often means you’ll receive far more than a defined contribution scheme is able to offer.

For this reason, many long-term employees would be wise to keep their defined benefit arrangement, though some still choose to transfer. This is something that should always be discussed with an advisor to ensure there’s no financial loss, and many receiving schemes will not accept a transfer in from a defined benefit scheme if you cannot provide evidence that you have received financial advice from a regulated financial advisor.

Can you have a SIPP and a workplace pension?

Yes, you can! If you’ve already enrolled in your workplace pension scheme and want to continue benefiting from employer contributions, but want a separate pension pot where you can take charge of your investments, there’s no reason you can’t open a SIPP as well.

Technically there’s no limit to the number of SIPPs you can have – it could just take a bit of organisation to make sure you don’t lose track of them to ensure you’re getting maximum benefits from each one and not breaching any of your pension allowances.

NEST vs. SIPP

The above applies if you’re part of a NEST pension as well. NEST – or the National Employment Savings Trust – is a workplace pension scheme set up by the government that’s designed to be a cost-effective, easy to use and low-risk with a small range of funds, and a lot of companies use it for their employees. Yet you can still have a separate SIPP and a NEST pension if you choose, which may be a consideration if you’ve got a higher risk appetite.

Can your workplace pension be a SIPP?

In some cases, yes. While the majority of workplace pension schemes will be defined contribution – and a very few will be defined benefit – some companies are able to offer a workplace SIPP as an alternative.

A workplace SIPP is a kind of group SIPP that employers hold for their employees, but they’re often reserved for select members of a company (such as senior management) and will rarely be the default company-wide scheme.

How a pensions advisor can help you make the right choice

An expert advisor who specialises in SIPPs and employer pensions can be invaluable if you’re deciding which option would be right for you. The ones we work with offer a free pensions review to get an overview of your current pension arrangements, your finances and retirement goals, and from there they can help you identify your risk appetite and decide whether or not a SIPP – either as an alternative or addition to your workplace pension scheme – should be considered.

If so, they’ll help you identify the best SIPP provider to suit your requirements, and can even advise on the investments that could match your income goals. They can offer advice on things like pension transfers, too, which may be a consideration if you’re changing careers and want to consolidate your pension savings.

Make an enquiry to find out more about how a specialist can help.

Can you transfer your workplace pension to a SIPP?

Typically, yes. In fact, people often choose to transfer their pension if they’re leaving their current role and/or are transitioning to self-employment, with SIPPs particularly popular among sole traders and directors of limited companies.

See our guide to transferring workplace pensions to SIPPs for more information.

Can you open a SIPP if you have a company pension?

Yes, and this applies whether your company pension is a defined contribution scheme or a defined benefit arrangement.

You’ll be able to pay into both your SIPP and company pension should you wish, though remember you normally won’t benefit from employer contributions in a SIPP, which may be a particular consideration if your employer matches your contribution level.