What is the difference between a SIPP and a workplace pension?

Full answer

Workplace pensions and SIPPs are both ways of saving for retirement with valuable tax relief, but they differ significantly in who sets them up, who contributes, and how much control you have over investment choices. **How workplace pensions work** Under auto-enrolment, most employers must automatically enrol eligible employees into a workplace pension scheme and contribute on their behalf -- for 2026/27, the statutory minimum is a total contribution of 8% of qualifying earnings (band £6,240 to £50,270), split as at least 3% from the employer and at least 5% from the employee (which includes tax relief). The employer chooses which pension provider and scheme is used, and investment choices are typically limited to a menu the provider and employer have selected, often defaulting to a target-date or lifestyle fund unless you actively choose otherwise. **How SIPPs work** A Self-Invested Personal Pension is a type of personal pension that you open directly with a SIPP provider, entirely independent of any employer. You choose the provider, control contributions (subject to the same £60,000 annual allowance that applies across all your pensions combined), and typically have access to a much wider range of investments -- individual shares, investment trusts, a broad range of funds, and sometimes commercial property -- compared with the more limited fund menu typical of most workplace schemes. **The critical difference -- employer contributions** The single most important practical difference is that a workplace pension normally comes with a mandatory employer contribution on top of your own, effectively "free money" you'd be giving up by opting out -- a SIPP you open independently generally has NO employer contribution unless your employer specifically agrees to pay into it (which some employers do offer as an alternative for employees who prefer to manage their own SIPP, though this isn't common or guaranteed). **Tax relief works the same way in principle** Both workplace pensions and SIPPs benefit from tax relief on contributions at your marginal rate, though the mechanics differ: workplace pensions commonly use "net pay" or salary sacrifice arrangements (relief applied automatically before tax is calculated) or "relief at source", while SIPP providers typically use relief at source, where you contribute net of basic rate tax and the provider claims the basic rate top-up from HMRC, with higher and additional rate taxpayers needing to claim the extra relief through Self Assessment. **When people combine both** Many people have both a workplace pension (to capture the mandatory employer contribution, which shouldn't generally be given up) AND a separate SIPP, using the SIPP for additional voluntary contributions, consolidating old pensions from previous employers, or accessing a wider investment choice than their workplace scheme offers -- combined contributions across all pensions still count towards the same £60,000 annual allowance (tapered for very high earners). **Charges can differ significantly** Workplace pension charges are often capped (for example, a 0.75% annual charge cap applies to the default fund used for auto-enrolment in many schemes) and can be very competitive due to the employer's bulk-buying power, whereas SIPP charges vary significantly between providers and depend on the platform fee structure and investments chosen -- it's worth comparing total costs carefully before assuming a SIPP is automatically cheaper or better value. **Practical tip** Always contribute at least enough to your workplace pension to get the full employer match before directing additional retirement savings into a SIPP, since giving up an employer contribution to instead fund a SIPP is very rarely the better financial choice, even accounting for a SIPP's wider investment options.

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