If you’re saving for retirement in the UK, chances are you already have a workplace pension.
But you may also be wondering whether a Self-Invested Personal Pension (SIPP) could give you more control, flexibility, or value.
Both options can play an important role in your long-term financial plan. The key is understanding how they differ, and when each might make sense.
What is a workplace pension?
A workplace pension is set up by your employer. These are mandatory in the UK and you’re automatically enrolled if you meet certain criteria. As a result, they’re by far the most common way UK workers will put money away for retirement.
How it works
- You contribute a percentage of your salary
- Your employer also contributes
- You receive tax relief from the government
This makes workplace pensions a great way to build retirement savings, particularly because of the employer contributions.
There are drawbacks, however. For one, investment choice is often limited. The provider is also chosen by your employer, and fee and fund options can vary between schemes. In many ways, these pensions are viewed as the ‘default’ option, but they may not be perfect for you.
What is a SIPP?
A self-invested personal pension (or SIPP) is a pension that you manage yourself.
This means that you have full control over how your money is invested, typically with a wider range of investment options.
How it works
- You choose your investments
- You receive tax relief on contributions
- You can usually transfer in existing pensions
For many, a SIPP is a great way of consolidating workplace pensions that have built up over a number of different jobs. Or, they’re helpful for those who want greater control over their retirement investing.
They also come with drawbacks, however. For example, not everyone wants to choose their investments themselves. There are often no employer contributions (unless your employer and SIPP provider support it), and fees can vary by provider.
When a workplace pension makes sense
For most people, a workplace pension should be the starting point.
That’s because of one key benefit: employer contributions. Not taking full advantage of these contributions is effectively leaving money on the table.
A workplace pension may suit you if:
- You prefer a hands-off approach
- You’re happy with the default investment options
- You want a simple way to build retirement savings
When a SIPP might be worth considering
A SIPP can complement or, in some cases, replace a workplace pension.
It may be worth considering if you ant more control over your investments. Or, if you have multiple pensions elsewhere and want to consolidate them to make them easier to manage.
People also look at fees, which can vary greatly between different workplace pension providers and private pensions. When people change their providers, fees are often a big part of that decision.
Finally, if you prefer ETF investing to conventional workplace pensions, or you want to build your own long-term portfolio, then a SIPP might be worth considering.
Can you have both?
Yes, and many investors do. A common approach is:
- Use your workplace pension to benefit from employer contributions
- Use a SIPP for additional contributions and greater control
This can give you the best of both worlds: top ups from your employer, as well as all the flexibility over how the rest is invested.
What about fees?
Fees can vary widely between providers and can have a meaningful impact over time. When comparing options, look at:
- Platform fees
- Fund or ETF costs
- Trading fees (if applicable)
Even small differences in fees can add up over decades, so it’s worth paying attention. At InvestEngine, we don’t charge platform fees or trading fees. We also don’t charge a penny to transfer or draw down your pension. You only pay the underlying ETF costs.
What can you invest in?
This is where SIPPs tend to have the edge over workplace pensions. While workplace pensions often offer a limited fund range, SIPPs can provide access to a range of investment options.
This flexibility allows you to tailor your portfolio to your goals, risk tolerance, and time horizon. Want to see where InvestEngine SIPP holders have been putting their cash? Here’s the breakdown of the most bought SIPP ETFs in the last tax year.
In summary
A workplace pension is often the foundation of retirement saving in the UK, especially thanks to employer contributions.
A SIPP can offer more flexibility and control, making it a useful complement for those who want to take a more active role in their investing.
The right choice depends on your goals, your level of involvement, and how you want to manage your retirement savings.
Important information
Capital at risk. The value of your investments can go down as well as up, and you may get back less than you put in.
Tax treatment depends on individual circumstances and is subject to change. ETF costs also apply.
This content is for information only and is not financial advice. If in doubt you may wish to consult a professional adviser for guidance.