Contributing to a pension should be high on everyone’s priorities. These days you will probably be auto-enrolled in the workplace scheme but this option might not suit everybody.

If you would like more control, one option is to have a self-invested personal pension (SIPP), a do-it yourself pension plan.

In a SIPP, you can invest directly in equities, funds, ETFs and a range of other choices not always on offer in workplace schemes.

Many people assume you can’t use this type of retirement savings account if you want to benefit from employer pensions contributions. In fact you can use them for this purpose.

Admittedly not that many companies will make employer pension contributions into a SIPP at present. However, we believe more companies will eventually support it.

It’s definitely worth asking your employer if they will make contributions to your SIPP – as it may be simply be something they’ve not thought about before.

CAN YOU HAVE A SIPP AND A WORKPLACE PENSION?

SIPPs are designed for individuals with experience of investing and there is nothing to stop you holding a workplace pension and a SIPP at the same time.

A SIPP can be a useful way of saving a bit extra and giving you more choice over the sometimes restricted range of offerings from your employer.

While some employers will contribute to a SIPP, they are under no obligation. Where an employer does contribute, they may require that you also contribute with matching contributions from your salary.

Minh Tran, senior DC consultant at Willis Towers Watson, explains the background. ‘Typically where companies contribute to a SIPP, it is a “group” SIPP and via payroll. It is fairly uncommon (but not unheard of) for companies to contribute to employees’ individual and different SIPPs due to the burdensome payroll and administration requirements.’

Additionally, Tran emphasises: ‘A workplace pension vehicle is always needed to comply with the automatic enrolment regulations.’

If you opt-out of your workplace pension in favour of your SIPP, it is difficult for employers to monitor your own contributions to check that you are still an active member of a pension scheme. Although in theory, companies can provide a cash allowance for employees to fund their individual SIPPs.

WHY WOULD SOME EMPLOYERS BE ANTI-SIPPS?

David Fairs, pensions partner at KPMG, says given each employee has a different SIPP the employer has the administrative burden of potentially paying a large number of different providers. ‘If something goes wrong, you don’t have the contact and leverage that you would have if all the employees are in the same scheme,’ he adds.

But if you work in a senior role, it is still worth asking an employer for a bespoke deal because sometimes they can be surprisingly flexible and regular contributions may not even be necessary
to receive a contribution from an employer.

HOW TO GET A HEAD START WITH A SIPP

One possibility to gain maximum flexibility is to transfer part of a workplace pension fund to a SIPP and then top it up with extra contributions, so you don’t lose out on any employer contributions.

SIPPs are also portable. If you change jobs, or stop working, you can continue contributing to the scheme, and, if you join a new employer, they may also decide to contribute to it.

If you do change jobs, you should let the pension provider know to ensure that your contributions continue (especially if your old employer was paying contributions on your behalf).

HOW MUCH MONEY CAN YOU PUT INTO A SIPP?

Contributions to SIPPs and their tax treatment are identical to other types of pension such as a workplace pension and you can hold as many pensions as you want to, subject to overall limits.

Payments are limited to £3,600 (£2,880 before 20% tax relief) or 100% of earned income, whichever is the higher, up to a maximum of £40,000 in any one year.

In theory, employers can even contribute more than the employee’s salary up to the annual allowance of £40,000 or more, if using carry forward. If the employee’s income is over £150,000 pension contributions are restricted, tapering down to £10,000 for those on incomes of over £210,000.

Since the introduction of the pension freedoms in 2015, SIPPs are increasingly being used to access the new flexibilities and some companies are offering SIPPs as part of their at-retirement solution.

Fiona Tait, technical director at Intelligent Pensions, says: ‘Many retirees, particularly those looking to use flexi-access drawdown, are attracted by the flexibility and investment choices available through a SIPP.’

As a final point, it is worth considering that SIPPs aren’t always suitable for everyone. ‘Many people don’t actually use the flexibility of SIPPs, so make sure you are not paying for flexibility you don’t need,’ comments Fairs at KPMG. (SH)

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