SIPP vs workplace pension: how they compare

A SIPP and a workplace pension are both ways of saving for retirement with tax relief, but they work differently. A workplace pension is arranged by your employer, who usually pays in alongside you, and the charges are capped at 0.75% a year¹. A SIPP is a personal pension you arrange yourself, with a wider choice of investments and no charge cap².

The main trade-off is control against cost. A SIPP lets you hold multiple investments and manage the fund yourself, and it usually offers a bigger range of investments than a traditional pension³. But a SIPP may have higher charges than a standard personal pension, and charges can be particularly high if you invest in property or other specialist investments⁴. SIPPs are not suitable for everyone for that reason⁵.

You can hold both at the same time, and there is nothing to stop you transferring a workplace pension into a SIPP⁶. The decision usually comes down to what your employer offers, what you want to invest in, and whether the extra choice is worth the extra cost.

What each one offers

A workplace pension is set up by your employer. Some workplace pensions are called occupational, works, company or work-based pensions, and some employers offer personal pensions as workplace pensions⁹. Under automatic enrolment, eligible employees are put into a scheme and both the employer and the employee pay in. The scheme usually has a default fund, chosen by the provider or trustees, that members are placed into unless they choose otherwise.

A SIPP is a type of personal pension. Personal pensions are defined contribution schemes, and there are two main types: stakeholder pensions and self-invested personal pensions¹⁰. A SIPP is a personal pension, and although your employer may contribute to it, it is very much your pot which you pay into¹¹. SIPPs allow you to hold multiple investments and products, so you can manage your pension fund yourself and have more control³.

The practical difference is investment choice. A SIPP gives you greater control and a wider choice of investments¹². Through this form of personal pension you have a more direct choice in how money is invested and a wider range of investments, often associated with higher charges¹³. Some providers offer a managed SIPP, where the provider chooses and manages the funds for you based on how you feel about risk¹⁴. Others offer a self-managed version where you pick the investments yourself¹⁴.

Both are long-term, tax-efficient ways of saving for retirement. A SIPP is flexible and portable: you can keep paying into it even if you change jobs or stop working¹⁵. A workplace pension stays with you when you leave a job, but you usually stop paying into it unless you arrange otherwise.

Fees, charges and eligibility

This is where the two diverge most. Workplace pension schemes are allowed to charge a maximum of 0.75% a year, which includes the fees charged by the pension providers and those charged by fund managers¹. There is no equivalent cap for SIPP fees². A SIPP may have higher charges than a standard personal pension⁴, and SIPPs are not suitable for everyone as they may be more expensive than other types of pensions⁵.

Your workplace pension may have lower charges than a personal pension¹⁶. Charges on workplace savings are generally lower than personal pensions¹⁷. The differences between personal pension, SIPP, workplace pension and stakeholder pension come down to the minimums you can pay in, the investments available, how payments are made, and the charges and discounts¹⁰.

SIPP charges vary by provider and by what you hold. One provider charges 0.35% a year on shares, investment trusts, ETFs, gilts and bonds, capped at £12.50 per month¹⁸. Another illustrates a total annual cost of £171.88 on a pension value of £50,000¹⁹. These are provider illustrations, not market rates, and the cost depends on the platform, the investments and how often you deal.

Eligibility differs too. You can have a SIPP and a workplace pension at the same time⁶. Some employers will pay into a SIPP for you instead of the workplace pension, but they are not obliged to do this⁶. If you are over 75, you cannot usually open a new SIPP, though you may be able to transfer existing pensions into one and you can still make contributions, normally without tax relief²⁰. The self-employed have access to personal pensions, SIPPs and stakeholder pensions²¹.

Opening a SIPP or moving a workplace pension

To open a SIPP, you choose a provider, complete an application to open an account, usually online, and pay into your account using a lump sum, regular contributions, or a transfer from a previous pension²⁰. One provider says you can open via its website or app and it should take less than 15 minutes, and you can start a transfer while opening the account or later²².

Transferring a workplace pension into a SIPP is possible. There is nothing to stop you transferring a workplace pension or pensions to your SIPP⁶. You may be able to transfer your workplace pension into a SIPP, a personal pension, a stakeholder pension or your new workplace pension²³. It is easy to transfer a personal pension to a SIPP if you want the additional investment choice and flexibility, or move a SIPP to a personal pension, by contacting your new pension provider²⁴.

There are conditions. Transferring defined benefit pensions into a SIPP is significantly more complicated²⁵. An in-specie transfer, where investments move across without being sold, only works if your new SIPP provider offers access to the same investments, and may not be an option if you are invested in an insurance company pension fund or a lifestyle fund with a target retirement date²⁵. You may also be able to transfer your current workplace pension and ask your employer to contribute to your SIPP instead²⁵.

Before transferring, check what you would lose. A workplace scheme may include benefits such as a protected retirement age or an employer contribution you would give up. The Financial Ombudsman Service has dealt with cases where a transfer left a consumer worse off. In one case study, a consumer complained about a transfer of her pension fund, and the charging structure in the SIPP was considerably higher than her previous stakeholder pension plan²⁶. In another, an adviser recommended a consumer change his personal pension plan to a self-invested personal pension, which was later used to invest in an unsuitable unregulated collective investment scheme²⁷.

Service and complaints

How you deal with each type of pension when something goes wrong depends on which one it is. For a workplace pension, you can complain to MoneyHelper or the Pensions Ombudsman about how your workplace pension is managed²⁸. The Pensions Ombudsman deals with complaints about how occupational and workplace schemes are run²⁹.

For a SIPP or personal pension, complain to the provider first. If you are unhappy with the outcome, you can take the complaint to the Financial Ombudsman Service. The Financial Ombudsman Service has published case studies involving SIPP transfers and unsuitable advice²⁶. In 2020/21, self-invested personal pensions were the most complained-about investment and pension product, with 3,021 new complaints³⁰. In 2009/10, SIPPs made up 2% of investment and pension complaints³¹.

Complaints about SIPP charges are common enough that consumer rights organisations publish guidance on excessive fees³². If you think you have been mis-sold a financial product, you can complain to the firm and then to the Financial Ombudsman Service if it is not resolved³³.

The service you get also depends on the provider. Some SIPPs are managed for you, with the provider choosing and managing the funds based on your attitude to risk¹⁴. Others are self-managed, where you make the investment decisions. A workplace pension usually comes with a default fund and less day-to-day involvement.

Protection for your money

Protection differs between the two, and this is one of the most important differences for a consumer to understand. SIPPs are typically deemed uninsured pension schemes and are not covered by the Financial Services Compensation Scheme in the same way as insurance-based pensions⁸. Self-invested personal pensions are classed as uninsured pension schemes, as opposed to contracts of long-term insurance³⁴.

That does not mean your money is unprotected in every scenario. The investments held inside a SIPP belong to you, and the protection depends on how the scheme is structured and what happens to the provider. But the FSCS safety net that applies to some pension products does not apply to SIPPs in the same way⁸.

Workplace pensions have their own protections. If your employer goes bust, the Pension Protection Fund may cover defined benefit schemes, and defined contribution schemes hold your money separately from the employer. The Pensions Ombudsman can investigate complaints about how a workplace scheme is managed²⁸.

The age at which you can access either type of pension is changing. Money in a SIPP cannot normally be accessed until age 55, rising to 57 from 6 April 2028⁷. The same change applies to personal and workplace pensions. You can claim while working as long as you have reached the age agreed with your pension provider³⁵.