SIPP or additional contribution to employer's scheme?

Tomatillo

I am thinking of opening a SIPP in addition to my employer’s pension and would appreciate any comments on what I should be considering.

I am a member of the University pension scheme USS. The current scheme has a career average DB section up to a salary cap (I also have some benefits in the closed final salary section). Beyond the salary cap contributions go into a DC scheme. I am over the salary cap so am building a little in the DC section from the standard contributions. 

 I am thinking of paying more into my pension, mainly because I want to have a fund I can draw on to retire a little early without reducing the DB payments. Also I would like to take advantage of the tax benefits esp as the 40% relief looks vulnerable to being cut. I’m trying to decide what the best way of doing this would be. I can make additional payments to the DC bit of the scheme but there would be no additional employer contribution. The benefit of using USS is that all the fees are met by the employer plus I think I can salary sacrifice so I think I am right in saying I would save 2% NI compared to paying direct to a SIPP. The disadvantage of using USS is that there’s very limited choice of funds (and they don’t seem to be doing brilliantly) so a SIPP would give me more options. There have also been real problem with the management of USS and there are well known funding problems so I’m attracted by the idea of having pension savings outside the scheme. 

 I think the attractions of having a SIPP outweigh the benefits of making additional contributions to USS but I’d really appreciate any views. I should say that I’d be making fairly modest contributions at the moment as (hopefully!) my main retirement plan is the DB part of the scheme. 

Albermarle

As you say more by salsac means 2% NI saving and no charges on the pension .
Into a SIPP means more choice of investments but no 2% NI saving and paying typically 0.4% to 1% for charges.
Another point is that by salary sacrifice you get the 40% tax relief automatically . If you contribute to a separate pension , the provider will only add basic rate tax relief and you have to claim the extra tax relief back from HMRC. It is not a big deal but the money comes back to you rather than into your pension , so you might end up spending it .
It is your decision .

Tomatillo

Thanks v. much. So aside from the 40% relief point it sounds as if i've got the right considerations on the scales. Just a case of working out which is best?

Albermarle

I would also do some more research on the funds in your ( free ) USS DC pension and what alternatives you might choose in a SIPP , before rushing to make any changes  . Depending on investment experience , more choice is not always a good thing .

Tomatillo

Depending on investment experience , more choice is not always a good thing .
Yes that is definitely true! I am not aiming to do anything particularly exciting, my main concern is that I feel a little uncomfortable having everything in the USS basket, espcially as it has had such a bad press. I've taken a very passive approach to my ISA and generally had monthly investments in Vanguard funds (mainly LifeStrategy) with the main aim of leaving it be. I'd aim to do something similar with a SIPP but probably with a different provider, likely Fidelity or AJ Bell. I'd be much more concerned about stragegy if this were my main pension.