SIPP vs Workplace pension: How to choose

Self Invested Personal Pensions (SIPPs) and workplace pensions both offer different advantages, and the right choice for you might depend on your priorities. The former gives you more control and investment choice, the latter offers employer contributions and simplicity.

This guide compares features like tax benefits, flexibility, and more to give you the overview you need. It will also tell you why the question of SIPP vs Workplace pension doesn't have to mean choosing one or the other.

What is a SIPP?

SIPPs are a type of pension you can use to gain greater control over your retirement pot. They carry some of the broader benefits of pensions, like tax advantages and government top-ups, while also offering greater investment choice. 

Key SIPP features:

• Contributions limited by pension annual allowance, which is usually £60,000 or 100% of earnings (whichever is lower)
• The “carry forward rule” means any unused allowance can be used over the following three years.
• No withdrawals allowed until age 55 (rising to 57 in 2028) 
• Growth and income are usually tax-free
• Withdrawals are partially tax-free (usually 25% of your pot)
• Contributions boosted with tax relief
• Account holders choose how their pot is invested across a range of assets

💡 For more, check out our SIPP guide.

What is a workplace pension?

A workplace pension is arranged by your employer. Contributions are taken from your pay, and your employer will contribute too. These contributions are automatically invested to build a pot for your retirement.

The features below broadly refer to defined contribution (DC) workplace pensions. These are currently the most common type of workplace pension, but you may instead be part of a defined benefit (DB) scheme. 

Key DC workplace pension features: 

• Contributions are limited by the pension annual allowance
• The carry-forward rule also applies
• Not generally accessible until age 55 (climbing to 57 in 2028)
• Growth and income is tax-free
• Automatically invested into default funds
• Limited investment choice
• Contributions boosted with tax relief and employer contributions

What about defined benefit workplace pensions?

While DC pensions build a pot based on contributions and investment performance, DB pensions promise a particular retirement income. This income is usually linked to salary and years of service.

These pensions are becoming less common and are often referred to as “gold-plated”. This is because they guarantee income for life and leave the scheme to handle longevity and investment risk.

If you still want to transfer a DB scheme to a SIPP, the UK’s Pension Schemes Act requires you to seek out independent financial advice if your DB pension is worth more than £30,000. Because of the nature of a DB transfer, many SIPP providers won’t accept a DB transfer. 

SIPP pros and cons

Pros:

• Investment universe: Access to a broader range of investments, such as individual shares, ETFs, investment trusts, bonds, and more, than you can find with most workplace schemes.
• Control and customisation: Pick a platform and manage your retirement pot to suit your level of risk, rebalancing and strategy. 
• Consolidation: A place to combine multiple old pots in one place and keep track of pots that might otherwise be lost.
• Encourages engagement: Can ensure you keep an eye on your retirement savings, improving your ability to make realistic plans for retirement and spot problems before they snowball. 
• Pick your platform: While you do not choose your workplace provider, opening a personal pension like a SIPP allows you to choose the perfect platform for you.

Cons:

• Employer contributions: Many SIPPs do not accept employer contributions. This might mean you decide not to replace your current workplace pension with a SIPP, but instead use it as a place to transfer older pots. 
• Tax relief mechanics: If you are a higher or additional rate taxpayer, you may need to manually reclaim pension tax relief from SIPP contributions. This is because most SIPPs use the relief at source method. 
• More responsibility: Greater choice of investments can be a great thing, but you might make poor choices or find building your own portfolio stressful. 

💡 Find out more about pension tax relief.

Workplace pension pros and cons

Pros: 

• Employer contributions: Your employer contributes to your workplace pension, which is not typically the case with a SIPP. 
• Salary sacrifice: If your employer offers salary sacrifice pension contributions, you may be able to reduce your taxable income. However, the government is making changes to salary sacrifice rules from April 2029, capping pension contributions at £2,000 before National Insurance is applied.
• Simple and easy: Payroll deductions are automatic and consistent, and your contributions are automatically invested in a default fund. 

Cons:

• Less investment choice: Fund ranges can be limited, and many providers will not offer individual shares or ETFs. 
• Basic features: Less flexibility for things like precise asset allocation and advanced trading or rebalancing tools.
• Out of sight, out of mind: Workplace pensions are set up to be largely automated, but this means you may not notice if your pot is not growing, your contributions are too low, or fees are too high. 
• Not tailored to you: Workplace pension providers are picked by your employer, not you. You might be stuck with options that do not suit your needs.

Can I have a SIPP and a workplace pension?

You do not HAVE to choose between a SIPP and a workplace pension. You can have both, and there are common scenarios where you may benefit from using both. 

For example, you might decide to open a SIPP to consolidate old pension pots, but keep paying into your current workplace pension. 

Or, you might be maxing out employer contributions and still want to contribute more to your retirement pot. You might choose to use a SIPP for these extra contributions, taking advantage of the increased investment choice and management options. 

SIPP vs Workplace pension - FAQs

Can I transfer a workplace pension to a SIPP?

Yes, you can transfer a workplace pension into a SIPP in most cases. If you don’t want to move the whole pot, you can do a partial transfer. 

Can I pay into a SIPP and a workplace pension?

You can pay into both a SIPP and a workplace pension. Just ensure you do not exceed your annual pension allowance.

Is a SIPP better than a workplace pension?

A SIPP is not necessarily “better” or “worse” than a workplace pension, but it does offer you more flexibility and control in deciding how your retirement savings are invested.

Should I move my workplace pension into a SIPP?

In many cases you can move your workplace pension into a SIPP, but you should always stop and think about key considerations first. Check for exit fees, loss of benefits, and seek financial advice if you need help. 

Do I need a workplace pension and a SIPP?

Everyone’s circumstances are different, and you may not need both types of pension. However, if you check your pension pot and find it is underperforming, a SIPP can help you to top up your retirement pot or exert more control over how it is invested.

How much can you put into a SIPP each year in the UK?

SIPP contributions must remain within the bounds of your pension annual allowance or you will not receive tax relief on them. For most people, this is £60,000 or 100% of annual income. Find out more in Freetrade’s guide to pension tax relief.

Is a workplace pension enough to retire on?

Your workplace pension might be enough to retire on, depending on how much is in your pot. Think about how much you need to retire, and determine if your workplace pension is enough or whether a SIPP might enhance your retirement portfolio.

Is it worth opening a SIPP at 55?

This depends on your personal circumstances, but there is no major reason a SIPP would not be worth it at 55. Just remember that investing for retirement in your 50s might require different strategies to investing for retirement in your 20s and 30s.