Can I have a SIPP and a workplace pension?
Yes, you can have a SIPP (Self Invested Personal Pension) and a workplace pension. You can contribute to both at the same time too.
Deciding if having both is right for you will depend on your personal circumstances.
Ultimately, having more than one pension will mean taking an active approach to managing them. An active approach gives you greater control over your pension investments – the fees you pay, what investments you choose and any changes you make.
Differences between a SIPP and a workplace pension
While a SIPP and a workplace pension are retirement products with tax benefits, there are some key differences.
Workplace pension key features
- Managed by your employer and pension provider
- Auto enrolment rules mean you and your employer must make contributions
- Contributions automated through your employer’s payroll
- Tax relief can be applied via three methods: relief at source, net pay or salary sacrifice.
- Investments usually matched to your age and adjusted automatically over time
- Fees sometimes discounted
- Suitable for investors with little or no experience
SIPP key features
- Managed by the SIPP holder (you)
- Contributions can be flexible based on what you can afford
- 20% basic rate tax relief will be automatically granted. Higher rate tax will need to be claimed back from HMRC.
- Greater choice and control over your investments
- Fees often higher than workplace pensions but some low-cost SIPPS available
- Suitable for experienced investors
Should I have both a SIPP and a workplace pension?
Having a SIPP and a workplace pension means having a clear retirement investment strategy.
Workplace pension is at the core
By default, your workplace pension will be doing a lot of the hard work for you.
If you’re not an experienced investor, you might not have any need to make things more complicated or time consuming.
A SIPP can add flexibility
The addition of a SIPP to your retirement investment strategy can be useful for experienced investors. If you like to research investments, have a preferred pension provider or want a greater choice of investments, then a SIPP will give you flexibility.
Combining old workplace pensions
Workplace pensions may come and go, depending how often you change jobs.
Ensuring you keep track of old workplace pensions means having a strategy in place. That could involve having a SIPP.
Do nothing. Keep the details of for your old workplace pensions safe, so that you don’t lose track of them.
Transfer your old workplace pensions into your current workplace pension. This keeps everything in one place so that you have less admin to deal with. Dealing with the admin of old pensions – like updating contact details – can be a hassle.
Open a SIPP and transfer your old workplace pensions into it. Use the SIPP for future workplace pensions you acquire if you change jobs again.
It’s also possible to make transfers from your current workplace pension to your SIPP.
You might want to do this if your workplace pension has limited investment options. Bear in mind that you must always keep a small amount (some providers will have a minimum amount) in your workplace pension to keep it active for future contributions from your salary.
Should I contribute to both a SIPP and workplace pension?
As mentioned, your workplace pension is your default pension and benefits from employer contributions (free money effectively) as well as your own personal contributions.
There’s nothing stopping you from contributing to both. The tax benefits are usually the same.
However, there’s one instance when paying into your workplace pension will save you more in taxes than contributing to a SIPP.
Workplace pension contributions via Salary Sacrifice
When it comes to workplace pension contributions, Salary Sacrifice (sometimes called Salary Exchange) is the most tax-efficient way of adding money to your pension.
The unique feature of Salary Sacrifice is that not only do you get income tax relief on your pension contributions, but you don’t pay National Insurance either. For a basic rate taxpayer, that’s an additional tax saving of 12%
This effectively means your pension contribution costs you less in taxes vs contributions to a SIPP. A SIPP only gives you income tax relief.
So, if you’re considering making additional contributions to a SIPP and you already have a Salary Sacrifice workplace pension, the best thing to do from a tax point of view is to increase contributions to your workplace pension.
If you’re not sure if your workplace pension uses the salary sacrifice method, check with your employer.
Having both a SIPP and a workplace pension could be suitable for you depending on what sort of strategy you want to have for managing your pensions.
The key difference is that you’ll take more active management of a SIPP than a workplace pension.
And if you want to receive guidance and support for workplace pensions at your organisation, book a free Financial Wellbeing Lunch & Learn for your workplace.