Should I use a workplace pension or a SIPP?
Choosing the right home for your retirement savings is crucial – it could leave you thousands of pounds better off. We explain the differences between a SIPP and workplace pension
John Fitzsimons
Making the decision about where you save for retirement – and how you invest the money – can have a huge impact on the pot you eventually have to live on when you give up work.
If you’re employed (rather than self-employed) you’ll be automatically entered into a workplace pension scheme where you and your employer contribute a monthly amount.
It’s also possible to save for retirement in a personal pension scheme such as a SIPP (self-invested personal pension). Deciding on where you prefer to save depends on a number of factors – or you might use both.
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What is a workplace pension?
A workplace pension is a scheme offered by your employer as part of your employment contract. They will contribute to your pension, as long as you contribute too. The amount will be a percentage of your salary.
Pension contributions are usually calculated as a percentage of your total earnings between £6,240 and £50,270 – these are the 'qualifying earnings' thresholds for the current tax year (2026/27).
By law the minimum amount for your employer to pay in is 3% and then you pay 5%, including 1% of government tax relief – but these amounts will vary between employers.
Pension tax relief refunds the income tax you first paid on the money you put into a pension – the money is dedicated from your pay after tax. So if you contribute £80, the government will 'top it up' by 20%, boosting your total contribution to £100 (if you’re a basic rate taxpayer).
Schemes are usually offered by an external pension provider and your money will be invested according to the 'default' options available in that scheme – typically equities and bonds through investment funds, which come in different forms.
Most workplace pensions are defined contribution (DC) schemes – where contributions from you and your employer are invested. The end value of the pot will depend on the performance of those investments.
A different type of workplace pension – known as a defined benefit (DB) scheme or final salary scheme – doesn't rely on stock market performance. Instead the value of your annual pension is calculated according to the number of years you've worked at the company and your salary when you retire. These schemes are now pretty rare.
What is a SIPP?
A SIPP is a flexible pension managed independently, which places an all-important tax wrapper around your retirement savings.
SIPPs benefit from tax relief on contributions, meaning you can pay into your SIPP and the relief will be added, boosting your overall savings.
If you're a basic rate taxpayer, you get that relief automatically. If you're a higher rate (40%) or additional rate (45%) taxpayer you can claim extra relief through your self-assessment tax return.
What is the difference between a workplace pension and a SIPP?
If you're employed, the key difference is usually flexibility versus convenience.
A workplace scheme is all taken care of – it's organised by your employer, who makes contributions on your behalf and can benefit from institutional pricing that can make things more cost-effective.
A SIPP is a personal pension where (unless you're working with a financial adviser) you choose and manage the investments and administration yourself, with greater flexibility and choice.
Scott Millar, founder and chartered financial planner at Finova Money, says the challenge is that more choice doesn't necessarily lead to better outcomes.
“For many people, consistent contributions and staying invested matter far more than having access to thousands of investment options.”
The variance of investment choice has also become less pronounced in recent years, he says, adding that the quality of the underlying investments, charges, employer contributions and retirement benefits are often more important considerations than the breadth of fund choice.
What are the advantages of a workplace pension versus a SIPP?
The beauty of a workplace pension is that you don’t need to do anything towards the running of it (apart from paying in each month, which happens automatically unless you opt out).
Your employer and payroll will take care of how your money is invested and will provide annual statements.
Steve Watson, director of policy and research at workplace pension and savings provider Cushon, says opting for effectively 'free money' on top of personal contributions is a no-brainer, as the biggest driver of retirement outcomes is the number and amount of pension contributions.
“For most people you simply cannot make up for missing out on them through investment choices alone.”
Many employers also offer salary sacrifice arrangements, which can reduce National Insurance (NI) costs and improve tax efficiency for both employer and employee.
"Some of the more generous employers will even share part of their NI savings with employees by paying it into their pension too – an often-overlooked benefit that can further boost long-term retirement savings," added Millar.
The biggest advantage to saving in a workplace pension rather than a SIPP is undoubtedly the fact that you miss out on contributions from your employer who will pay a minimum of 3% of your salary.
What are the advantages of a SIPP over a workplace pension?
The main advantage of a SIPP over a workplace pension is having control over your investments. You have complete freedom to choose how and where your money is invested. You can either hand-pick the funds yourself or ask an adviser for recommendations.
Given their broader range of investments, Watson believes SIPPs are better suited to experienced investors who understand pensions and are comfortable making their own investment decisions.
It's not just about a broader range of funds for their own sake. Millar gives the example of commercial property, which can be held in certain SIPPs.
"This can be attractive for business owners looking to purchase their trading premises through a pension structure. While this won't be relevant for most investors, it can be a valuable planning opportunity in specific circumstances."
Charges are another consideration. Investing isn't free and pensions are no different. Charges on SIPPs are competitive whereas some workplace pensions (particularly much older pension schemes) can come with higher charges.
Options offered at retirement might be more flexible with a SIPP where converting it into a pension drawdown scheme and drawing on your money is straightforward. Not all workplace schemes offer flexible ways to gain access to your money at retirement.
We look at how to pick a SIPP in a separate article.
Can you have a SIPP and a workplace pension?
It's possible to have multiple workplace schemes and a personal pension.
Typically the advice is to max out your workplace scheme first and then consider the SIPP as an additional vehicle.
Millar says: "Common examples include investors who want access to a broader investment universe, higher earners who are building wealth across multiple accounts and want greater control or individuals with several old pensions they wish to consolidate."
For business owners and the self-employed without access to a workplace pension, a SIPP is often their closest equivalent.
While you can continue contributing to more than one at a time, it's important that you keep within the pensions annual allowance.
For most people, the annual allowance is £60,000, or the amount of your annual salary – whichever is lower as you cannot pay more than you earn in a year.
The self-employed are entitled to all the same tax reliefs on pension contributions as employed people.
Anyone earning less than £3,600 a year – or who doesn't work at all – has a different annual allowance. In this instance your annual limit is £3,600, which means you can pay in £2,880 tax-free and the £720 tax top-up from HMRC makes it up to £3,600.
Conversely, there are different rules for higher earners. The annual pensions allowance reduces by £1 for every £2 earned over £260,000. This tapered allowance can't drop further than £10,000.
Millar says high earners need to be mindful of their contribution limits, particularly if they're senior professionals receiving large employer pension contributions, bonuses exchanged through salary sacrifice, or individuals contributing across multiple pension arrangements.
It's also worth remembering that while auto-enrolment was designed to encourage more people to save for their retirement, helping you save enough for a comfortable retirement – whatever that means to you – was never its objective.
An 8% total contribution may be sufficient for some people, but many hoping for a comfortable retirement will ultimately need to save more, whether through additional workplace pension contributions, a SIPP, or a combination of both.
Can an employer pay into my SIPP?
Usually an employer would pay pension contributions into its own scheme set up for staff. But if you would rather they contribute to your SIPP – and they agree – then contributions can be made into your SIPP. You might prefer to do this so that all your pension savings are under one roof.
If you are self-employed and operate under a limited business you can opt to pay into your SIPP from the company bank account. HMRC rules allow pension contributions to be treated as an allowable business expense and offset against your company’s corporation tax bill.
We explain how to set up a pension if you're self-employed in another guide.
Can I transfer my workplace pension into a SIPP?
It is usually possible to transfer a workplace pension into a SIPP so that you can combine your savings and gain full control of how the money is invested.
This is a popular move among those who have built up a string of workplace pension schemes and prefer to have everything under one roof. It can also be beneficial if you have money in an old scheme which has high charges and limited investment options.
Just be careful that any valuable scheme benefits, protected retirement ages or guarantees won’t be affected before you transfer.
It's worth looking at performance before deciding to transfer. Recent data compiled by Corporate Adviser Intelligence comparing group personal pensions and master trust arrangements show that over 10 years, all providers have delivered returns of more than double the rate of CPI inflation. Further, most have more than doubled members' pot sizes.
But the research points out that the range of outcomes is very wide – the best performer was Aon's Managed Core default, which delivered over 232% compared with 88% from Now:Pensions, after charges. The report flags, however, that since it was taken over by Mercer, Now:Pensions has revamped its default fund investment strategy, and its performance has improved.
