We all know paying into a pension is pretty important for later on in life. But when it comes to making the most of yours, you might find yourself asking: can I have a SIPP and a workplace pension?
Well, the answer is ‘yes’, and contributing to both could be a good way to boost your retirement income!
Before taking the plunge, however, there are some key things to consider — starting with the differences between them.
- Workplace pension vs SIPP: how do they differ?
- Can I have both?
- How many SIPPs can I have?
- Can I transfer my workplace pension to a SIPP?
- How do I find old workplace pensions?
- How do I set up a SIPP?
Workplace pension vs SIPP: how do they differ?
Even though your money will likely be invested in similar things – including bonds, shares, and property – workplace pensions and SIPPs (Self-Invested Personal Pensions) are two very different kettle of fish.
Workplace pension
- A type of private pension set up by your employer.
- Both you and your employer contribute.
- Your employer’s pension provider chooses how your money’s invested.
- A minimum of 5% is deducted from your monthly paycheck before tax.
- By law, employers then have to contribute at least 3%.
- Therefore, your minimum monthly contribution = at least 8% of your salary.
SIPP
- A type of private pension you set up yourself.
- You decide how much and how often you contribute.
- You get to choose where your money’s invested.
- You don’t have to pay capital gains or income tax on your investments.
- Your personal contributions get a 25% tax relief top-up from the government.
- So, if you paid £80 into your SIPP, the government would add another £20.
At Wealthify, we only offer a SIPP, with your tax treatment not only depending on your individual circumstances, but also subject to change in the future.
Read our SIPP vs workplace pension blog
Can I have a SIPP and a workplace pension?
As mentioned at the start of this article, you can contribute towards both at the same time (if you’re in a financial position to do so, that is).
Perhaps the most important thing to consider when paying into both, is how your annual pension allowance will be affected.
Currently £60,000– or up to 100% of your income (whichever is lower) – this allowance is how much you can pay into a pension without having to pay any tax. And, even though you can learn more in our comprehensive pension allowance guide, it’s a figure you’ll probably want to bear in mind.
It’s also worth noting that you can have your employer pay into a SIPP instead of your workplace scheme — although this is something you’ll need to discuss and agree together, as they’re not obliged to.
The biggest advantage of having a SIPP and workplace pension?
Being able to boost your overall pension pot — something that could help you live the kind of lifestyle you want in retirement.
Think of it as a two-pronged approach:
- With a workplace pension being taken directly from your salary, you’ll have one pot working quietly on autopilot in the background.
- In the meantime, a SIPP gives you the chance to create another pot that’s more flexible and hands-on.
How hands-on you want your SIPP to be, however, is entirely up to you.
With a Wealthify SIPP, for example, you can choose between five investment styles (from Cautious to Adventurous), as well as our Original or Ethical Plans. Once you’ve made those choices, our team of investment experts manage everything else for you!
If you’ve got a certain level of financial and investment knowledge, some providers even let you handpick the investments for your SIPP from scratch.
“But what happens to my workplace pension when I leave a job?”, we hear you ask. Well, the good news is that you can transfer your old workplace pensions to a SIPP — but more on that later.
How many SIPPs can I have?
The simple answer: you can have as many as you want.
After all, having more than one SIPP could help diversify your investments and, as a result, spread your risk.
The slightly more complex answer, however: there are a few important factors to consider first.
For example, having multiple SIPPs could also mean:
- More of your annual pension allowance being used.
- Paying multiple sets of fees that eat into your retirement fund.
- Increased admin due to managing more accounts, apps, and paperwork.
Can I transfer my workplace pension to a SIPP?
As long as it’s an old one you’re no longer paying into, then yes, you can transfer your workplace pensions to a SIPP.
The process of bringing old pots together is something known as pension consolidation.
As well as giving your previous workplace pensions the chance to work together in one higher-value pot, transferring to a SIPP could also:
- Make managing your eventual retirement fund easier.
- Provide more options (and control) over how your money’s invested.
- Save you having to pay multiple provider costs.
Please note, however, that combining two or more pensions into a SIPP doesn’t necessarily guarantee more retirement income — and investment performance is never guaranteed.
Other things to consider when transferring old workplace pensions to a SIPP include:
- Always compare your current pension provider’s fees with the new one.
- Check to see whether your existing provider has an exit charge.
- Understand whether transferring means losing features such as loyalty bonuses.
- While transferring, your pension will be ‘out of market’ and not invested.
How do I find old workplace pensions?
If, having made it this far, the idea of transferring your old workplace pensions to a SIPP has become more appealing, then you’ll need to know how and where to look in the first place.
Thankfully, the government’s handy Pension Tracing Service makes tracking them down a doddle.
Alternatively, you can take a deep dive by reading our complete guide to transferring pensions.
How do I set up a SIPP?
By now, you should have a clearer idea of what you can or can’t do when it comes to having a SIPP and workplace pension. Just to recap, however:
- You can pay into multiple SIPPs and one workplace pension at the same time.
- When paying into both, always be aware of your annual pension allowance.
- You can transfer your old workplace pensions into a SIPP.
- Transferring them all into one place could make managing your pension easier.
- Having them together doesn’t always equal more money in retirement though.
If you’ve researched thoroughly, weighed all your options, and now want to take the next step, you can learn how to set up a SIPP in our dedicated blog.
With investing, your capital is at risk. Please remember the value of your investments can go down as well as up, and you could get back less than invested.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
