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

Full answer

Both a workplace pension and a SIPP are ways of saving for retirement with tax relief, but they differ significantly in who contributes, how much control you have, and when each tends to be the better choice. **Employer contributions -- the biggest practical difference** Under auto-enrolment rules, your employer must contribute at least 3% of your qualifying earnings into your workplace pension (with you contributing at least 5%, for a combined statutory minimum of 8%), and many employers contribute more, sometimes matching your own contributions up to a higher percentage. A SIPP, by contrast, generally receives NO employer contribution unless you have specifically arranged for your employer to pay into it instead of, or alongside, a workplace scheme -- most employers will not do this unless asked, and some will not offer it at all, since auto-enrolment obligations are usually satisfied through their designated workplace scheme. **Investment choice** Workplace pensions typically offer a limited range of investment funds selected by the scheme provider or trustees, often centred around a default fund designed to suit the average member's risk profile and time to retirement. A SIPP offers a much wider range of investment choices -- individual shares, investment trusts, a broad range of funds, and in some cases commercial property -- giving experienced or engaged investors far more control over exactly how their pension is invested. **Costs** Workplace pension charges are often relatively low, since providers negotiate rates with large employer schemes and the government caps default fund charges at 0.75% a year for auto-enrolment schemes. SIPP charges vary widely by provider and can include platform fees, fund charges, and sometimes dealing charges for buying and selling investments -- costs can be higher than a workplace pension's default fund, particularly for smaller pots, though competitive SIPP providers exist. **Tax relief -- broadly similar** Both workplace pensions and SIPPs benefit from tax relief on personal contributions, though the MECHANISM can differ: many workplace pensions use "net pay" or "relief at source" arrangements automatically through payroll, while SIPP contributions are typically made net of basic-rate tax relief (with the provider claiming the 20% top-up from HMRC automatically), and higher or additional-rate taxpayers claim the extra relief via Self Assessment or by adjusting their tax code. **When to consider a SIPP alongside a workplace pension** Many people use a SIPP not INSTEAD of a workplace pension, but as well as one -- for example to consolidate old workplace pensions from previous employers into a single, more easily managed pot, to make additional voluntary contributions beyond the workplace scheme with more investment choice, or for self-employed people with no workplace pension at all, where a SIPP (or a simpler personal pension) is often the main retirement saving vehicle. **Worked example** Someone earning £40,000 contributes 5% (£2,000) to their workplace pension, with their employer adding 3% (£1,200), for a total of £3,200 a year going in, benefiting from the employer contribution they would not get in a SIPP. They also open a SIPP to consolidate two small pension pots from previous jobs, giving them more control over how that consolidated pot is invested, while continuing to prioritise their current workplace pension first to capture the full employer contribution. **Practical tip** Always contribute enough to your workplace pension to get the FULL employer match before directing extra savings into a SIPP, since the employer contribution is essentially free money that a SIPP cannot replicate unless your employer specifically agrees to pay into it instead.

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