Look, we get it: even if you consider yourself ‘financially savvy’, getting to grips with pensions can still seem pretty daunting!
However, knowing the difference between various types of pensions (especially SIPP vs workplace pension) could not only help you feel more financially confident, but create a better retirement, too.
So, if you thought having a SIPP (Self-Invested Personal Pension) was just something you did with a cup of tea or coffee, then you might want to carry on reading — as this article looks to answer important pension-related questions, including:
- What is a SIPP?
- What is a workplace pension?
- Workplace pension vs SIPP: what are the differences?
- Comparing the benefits of both
- Can I have a SIPP and a workplace pension?
- Can you transfer a workplace pension to a SIPP?
- How to find old workplace pensions
- How do I set up a SIPP?
What is a SIPP?
Ok, let’s start with the basics: SIPP is short for Self-Invested Personal Pension.
A type of private pension, a SIPP is something you set up and contribute to yourself, helping you save for retirement on your terms. The money in a SIPP is usually invested in a range of investments, including shares, bonds, and property.
You’ll often hear a SIPP being referred to as a tax-efficient option for retirement — and this is because it provides a couple of nice tax benefits.
Firstly, you don’t have to pay capital gains or income tax on your investments; plus, on personal contributions, you get a 25% instant tax relief top-up from the government (so, if you paid £80 into your SIPP, the government would add another £20).
For more information, please read our comprehensive SIPP guide.
What is a workplace pension?
Another type of private pension, workplace pensions are set up by your employer.
Both you and your employer contribute to a workplace pension; a minimum of 5% is deducted from your monthly paycheck before tax, while they have to contribute at least 3%, by law.
As a result, your workplace pension will receive a minimum monthly contribution comprising at least 8% of your salary — while also benefitting from government tax relief. You can also increase your workplace pension contribution percentage at any point, if you want.
Workplace pension vs SIPP: what are the differences?
Now we know who’s responsible for setting up and contributing to a workplace pension and SIPP, are there any other differences to be aware of? The answer is 'yes' — especially when it comes to the control you have over how your money’s invested. (Please note, however, that your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.)
From the choice of provider to investment strategy; because a workplace pension is managed by your employer, you might not have much of a say in how your money’s put to work.
Although we don’t offer a workplace pension, our SIPP lets you choose exactly how your money’s invested.
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, the investment process is then managed for you by our team of investment experts.
If you’re looking for even more of a say in how your money’s invested, some providers also give you the option to handpick your investments from scratch. Whether you're looking for your SIPP to be invested in stocks and shares, bonds, or funds; please note that taking this approach requires a certain level of financial and investment knowledge.
Benefits of a SIPP vs a workplace pension
Whether you’re paying into a SIPP or workplace pension, ultimately, the overarching benefit is the same for both: you’re committing and contributing to your future!
They do each come, however, with more specific, individual benefits:
The benefits of a SIPP
- It's an additional way to boost retirement income, alongside any potential state and workplace pensions you might have.
- With the government's 25% top-up on personal contributions, and no capital gains or income tax to pay on your investments, it's a tax-efficient way to boost retirement income, too.
- Thanks to the fact you can adjust how much and how often you pay in, a SIPP also provides flexibility — especially for self-employed people wanting to make personal contributions
The benefits of a workplace pension
- Because everything is arranged by the employer (including contributions being automatically taken from your salary), workplace pensions offer convenience.
- Thanks to employer contributions, workplace pensions are one of the quickest, most lucrative ways to boost your retirement fund.
- Certain employers offer a salary sacrifice, which is a tax-efficient way to ‘sacrifice’ a portion of your salary in exchange for additional pension contributions.
SIPP vs workplace pension considerations
As ever, there are some key things to consider if you’re looking to understand SIPPs and workplace pensions in more detail.
With a SIPP, for example, there are certain tax implications you’ll need to be aware of:
- Apart from the first 25%, income withdrawals from SIPP are typically subject to tax.
- Withdrawing funds before the age of 55 (or minimum pension age, which is due to rise to 57 in 2028), could lead to tax penalties and additional charges.
- Exceeding your annual pension allowance may also result in tax charges.
- If you die before age 75, your beneficiaries don't pay tax on any of their withdrawals.
- If you die after 75, however, withdrawals are taxed as income.
When it comes to being automatically enrolled into a workplace pension by your employer, you'll need to meet the following criteria:
- Not already be in a workplace pension.
- Be aged 22 or over but under State Pension age (currently 66, although this is set to rise to 68 between 2044–2046).
- Earning more than £10,000 a year.
- Working in the UK.
Can I have a SIPP and a workplace pension?
Yes, you can. In fact, if you are able to contribute towards both at the same time, then your pension is in a stronger position than average!
Can you transfer a workplace pension to a SIPP?
Transferring old workplace pensions to a SIPP – a process known as pension consolidation (and one that’s offered by Wealthify) – is something you might consider for a variety of reasons.
Having multiple workplace pensions in one SIPP could, for example:
- Make managing your retirement pot easier.
- Give you more control over how your money’s invested.
- Save you money by not having to pay multiple provider fees.
Regardless of the provider you choose, there are some additional considerations to make sure transferring is right for you:
- 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.
- Combining two or more pensions doesn’t guarantee more retirement income.
- Investment performance with a SIPP is never guaranteed.
- While transferring, your pension will be ‘out of market’ and not invested.
How to find old workplace pensions
Ok, so you’ve made it this far, but there’s one final, not-so-small detail you need to know before getting started: how do I actually find my old workplace pensions?
Finding a workplace pension when you know the provider
In this instance, you’ll need to find your policy number — usually on an annual statement from the pension provider (even if it’s one you no longer pay into). If you can’t find a statement, then you may still be able to find the pension by getting in contact with the provider and sharing some basic personal details.
Finding a workplace pension when you don’t know the provider
If you find yourself in this situation, start by contacting your old employer, as they should have a record of your pension on file. Once you have the policy provider’s name, you should be able to find the pension by contacting them.
If you’re looking for a comprehensive guide on the matter, then you might want to read our dedicated ‘how to find old pensions’ blog.
How do I set up a SIPP?
Transferring to Wealthify works in three simple steps:
Step 1: Create an account
Create your Wealthify account by telling us some basic details about yourself. We'll then ask you a few questions to help assess your suitability and investment style for a Wealthify SIPP.
Step 2: Pension details
Whether you're transferring one or multiple pensions, we'll need your existing provider's name, account reference number, and approximate value of your pension.
Step 3: Leave it to us
Once you’ve authorised the pension transfer, you don’t need to lift a finger! We’ll contact your existing pension provider, transferring the pension's current cash value — ready for us to invest into your new Wealthify Pension.
With Wealthify, the pension transfer process usually takes 2 to 6 weeks to complete.
Please be aware that we can't accept pensions you’re already taking an income from, or ones with safeguarded benefits, such as:
- Defined Benefit pensions
- Those with a guaranteed income
- Pensions where you can get more than your 25% tax-free cash.
So, there you have it: the differences between a SIPP vs workplace pension.
Ready to get started with transferring your workplace pensions to a Wealthify SIPP? Then visit our pension transfer page to learn more!
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.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.