Workplace Pensions UK 2026/27 — Auto-Enrolment, Salary Sacrifice and DB vs DC GuideWorkplace Pension vs SIPP — Should You Switch or Have Both?
Compare workplace pensions and SIPPs. Employer contributions, fees, investment choice, and whether to transfer or keep both.
Workplace pensions and SIPPs both help you save for retirement, but they work differently. Here’s how to use them together effectively.
Quick Comparison
| Feature | Workplace Pension | SIPP |
|---|
| Employer contributions | Yes (minimum 3%) | No |
| Investment choice | Limited funds | Thousands of options |
| Fees | Usually low (0.5-1%) | Varies (can be lower) |
| Control | Limited | Full |
| Auto-enrolment | Automatic | You must set up |
| Portability | Can transfer | Already portable |
How Workplace Pensions Work
Auto-Enrolment Requirements (2025/26)
| Contribution | Minimum |
|---|
| Your contribution | 5% of qualifying earnings |
| Employer contribution | 3% of qualifying earnings |
| Total | 8% of qualifying earnings |
Qualifying Earnings
| Element | Range |
|---|
| Lower earnings limit | £6,240 |
| Upper earnings limit | £50,270 |
| Contributions calculated on | Earnings between these |
Example: £40,000 Salary
| Calculation | Amount |
|---|
| Qualifying earnings | £33,760 (£40,000 - £6,240) |
| Your contribution (5%) | £1,688/year |
| Employer contribution (3%) | £1,013/year |
| Total annual contribution | £2,701 |
You pay £1,688 and get £1,013 free from employer — 60% boost on your money.
How SIPPs Work
The Basics
| Feature | Details |
|---|
| Set up by you | Choose your provider |
| Fund yourself | No employer contributions |
| Investment control | Choose from thousands |
| Tax relief | Same as workplace pension |
| Annual allowance | £60,000 (total across all pensions) |
Tax Relief on SIPP Contributions
| Your Tax Rate | You Pay | Relief | Total in SIPP |
|---|
| Basic (20%) | £80 | £20 | £100 |
| Higher (40%) | £60 | £40 | £100 |
| Additional (45%) | £55 | £45 | £100 |
Why Employer Contributions Matter
The Free Money Principle
| What You Pay | Employer Adds | Tax Relief | Total |
|---|
| £80 | £48 | £20 | £148 |
Never sacrifice employer contributions — you can’t replicate this in a SIPP.
Impact Over a Career
| Scenario | Total at Retirement* |
|---|
| Workplace (8% total) | ~£400,000 |
| SIPP only (5% no employer) | ~£250,000 |
*Assumes £50,000 salary, 5% growth, 40 years. Employer contributions add ~£150,000+ over a career.
Investment Options Compared
Typical Workplace Pension
| Option | Availability |
|---|
| Default lifestyle fund | Yes |
| Equity funds (3-5) | Usually |
| Bond funds (1-2) | Usually |
| Cash fund | Usually |
| Total options | 5-15 typically |
Typical SIPP
| Option | Availability |
|---|
| Index funds | Hundreds |
| Active funds | Thousands |
| ETFs | Thousands |
| Individual shares | Yes |
| Investment trusts | Yes |
| Bonds | Yes |
If you want to invest in specific index funds or build your own portfolio, SIPPs win.
Fee Comparison
Workplace Pension Fees
| Fee Type | Typical Range |
|---|
| Management charge | 0.5-1.0% |
| Auto-enrolment cap | 0.75% maximum |
| Hidden costs | Sometimes higher |
SIPP Fees
| Provider | Platform Fee |
|---|
| Vanguard | 0.15% (capped £375) |
| AJ Bell | 0.25% (capped £120) |
| Interactive Investor | £12.99/month flat |
Plus underlying fund costs (0.05-0.5% typically).
Fee Impact Example: £200,000 Pot
| Annual Fee | Annual Cost |
|---|
| 0.75% (workplace) | £1,500 |
| 0.25% (SIPP) | £500 |
| Difference | £1,000/year |
Over 20 years, this could mean £30,000+ difference.
When to Use Each
Keep Contributing to Workplace Pension If:
| Situation | Reason |
|---|
| Employer contributes | Free money |
| Fees are reasonable | Under 0.75% |
| Investment options adequate | Can find suitable funds |
| Convenience matters | Auto-deducted from salary |
Open a SIPP If:
| Situation | Reason |
|---|
| Want more investment choice | Specific funds/strategies |
| Old pensions to consolidate | Easier to manage |
| Lower fees available | Save on management costs |
| Additional contributions | Beyond workplace scheme |
| Self-employed | No workplace pension available |
The Combined Strategy
How It Works
| Account | Use For |
|---|
| Workplace pension | Employer contributions (mandatory) |
| SIPP | Additional savings with better investments |
Example: Higher Earner Strategy
| Contribution | Where | Why |
|---|
| £2,700 | Workplace | Get £1,013 employer match |
| £7,300 | SIPP | Better funds, lower fees |
| Total: £10,000/year | | with employer’s £1,013 = £11,013 |
Transferring Old Workplace Pensions
When to Transfer to SIPP
| Situation | Consider Transfer? |
|---|
| Old pension with high fees | Yes |
| Multiple small pensions | Yes — consolidate |
| Want investment control | Yes |
| Leaving money dormant | Yes |
| Defined benefit (final salary) | Usually NO |
When to Keep in Workplace Scheme
| Situation | Keep It? |
|---|
| Still paying in | Yes — keep employer contributions |
| Defined benefit scheme | Usually yes — guaranteed benefits |
| Protected retirement age | Check before moving |
| Low fees and good options | May be fine where it is |
Transfer Process
| Step | Action |
|---|
| 1 | Open SIPP with chosen provider |
| 2 | Get transfer request form |
| 3 | Provide old pension details |
| 4 | SIPP provider handles transfer |
| 5 | Usually takes 4-8 weeks |
Defined Benefit Pensions: Special Case
What They Are
| Feature | Details |
|---|
| Guaranteed income | Based on salary and years |
| Employer risk | They fund any shortfall |
| Inflation protection | Usually built in |
| Examples | NHS, Teachers, Local Government |
Should You Transfer Out?
| Consideration | Details |
|---|
| Generally: NO | Guaranteed income very valuable |
| Transfer value | Often seems attractive |
| Reality | Almost never better than guarantee |
| Requirement | Must take financial advice if >£30,000 |
Defined benefit schemes are almost always worth keeping.
Managing Multiple Pensions
The Problem
| Issue | Impact |
|---|
| Multiple logins | Hard to track |
| Different investments | Inconsistent strategy |
| Various fees | May overpay |
| Forgotten pensions | Money languishing |
Solution: Consolidate in SIPP
| Before | After |
|---|
| 4 old workplace pensions | 1 SIPP |
| 1 current workplace pension | 1 workplace pension (keep) |
| Total: 5 logins | 2 logins |
Keep current workplace scheme → transfer old ones to SIPP.
Contribution Limits
Annual Allowance
| Allowance | Amount |
|---|
| Standard | £60,000 |
| Or 100% of earnings | If lower |
| Carry forward | 3 years unused |
This is total across ALL pensions — workplace and SIPP combined.
Example: Maximising Contributions
| Source | Amount |
|---|
| Workplace (you + employer) | £8,000 |
| SIPP | £52,000 |
| Total | £60,000 (at limit) |
Decision Framework
Step 1: Keep Workplace Pension?
| Question | Answer → Action |
|---|
| Employer contributes? | Yes → Keep |
| Fees under 0.75%? | Yes → Keep |
| Decent fund options? | Yes → Keep |
Step 2: Open a SIPP?
| Question | Answer → Action |
|---|
| Want to save more? | Yes → Open SIPP |
| Want specific investments? | Yes → Open SIPP |
| Have old pensions? | Consider SIPP for consolidation |
Step 3: How Much Where?
| Income | Strategy |
|---|
| Low (under £30k) | Workplace only, maximise employer match |
| Medium (£30-60k) | Workplace + SIPP top-up |
| High (£60k+) | Workplace match + significant SIPP |
| Self-employed | SIPP primarily |
Summary
| Recommendation | Details |
|---|
| Never give up employer match | Free money beats everything |
| Keep current workplace pension | For employer contributions |
| Consider SIPP for extras | Better choice and fees |
| Transfer old pensions | Consolidate for simplicity |
| Don’t transfer DB schemes | Without proper advice |
Best strategy for most people: Workplace pension to get employer contributions → SIPP for additional savings and old pension consolidation.
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