Why use a SIPP and workplace pension together?

isayhello

I came across an article on monevator - https://monevator.com/sipps-vs-isas-best-pension-vehicle/ which mentions:

But it’s a combination of SIPP (or stakeholder pension) and workplace pension all the way if you want to hit retirement at age 55 or beyond.

I have a workplace pension already setup but I haven't thought about using a SIPP, why are both recommended so strongly? Isn't it like having multiple ISA providers? but if you're happy with one ISA provider and they have the investments you want then why would you want to use others?

Alistair31

Cheaper fees in SIPP than workplace pension, at least for me anyway. 

eskbanker

SIPPs will be accessible at your convenience past 55 (subject to legislative access age adjustments in future), whereas workplace pensions are often less flexible, but offer employer contributions.  More investment choice with a SIPP too....

Prism

Workplace pensions are usually the best option as they give a level of employer match, often are used with salary sacrifice which saves on national insurance and sometimes are discounted to a cheap level comparable with the lowest cost platforms.

The weakness usually comes down to investment choice. It seems pretty rare to get access to ETFs, investment trusts or individual stocks in a workplace pension. The standard fund choice is often a bit limited too, for example often there is no simple world equity tracker and the multi-asset funds seem a bit meh.

redpete

Workplace pensions can have employer contributions (free money going into the pension) and payments made by salary sacrifice (reducing net cost to you). SIPPs can have cheaper charges, more flexibility and more choice for investments.

In my case both are worthwhile for those reasons.

lisyloo

Your employer has to pay you minimum wage in cash ( after any deductions such as life insurance, healthcare).
so you can run out of allowance.
i was putting the max I could into my workplace pension then the remaining amount into my SIPP.

Movie_Star

I realise it’s been said already,  but getting that maximum % your employer can match against your contributions is key. This means 50% ‘free’ money at its most efficient. Employer provided pensions normally have minimal charges. So watch those with any Sipp. If your employer provides pre-tax deductions then your winning big time. The employer match and pre-tax can then be used to reduce your taxable earnings into a more suitable tax band if you can afford it. With Sipps, the risk, charges, and tax are all yours.

noclaf

Prism said:

Workplace pensions are usually the best option as they give a level of employer match, often are used with salary sacrifice which saves on national insurance and sometimes are discounted to a cheap level comparable with the lowest cost platforms.

The weakness usually comes down to investment choice. It seems pretty rare to get access to ETFs, investment trusts or individual stocks in a workplace pension. The standard fund choice is often a bit limited too, for example often there is no simple world equity tracker and the multi-asset funds seem a bit meh.

This sums my use-case for workplace pension / SIPP combo:

I use current employer DC pension to maximise the salary sacrifice 'employer matching' contributions on offer and the range of funds is reasonably good with access to competitively priced Vanguard global equities funds.

My previous employer pension has less range of funds, no ETF's and in general the passive funds were not great and the active ones were expensive on fee's. I was happy to put up with it for a while but have now opened a SIPP and will transfer the old pension out, primarily so I can access a cheap global equities etf. I also have an employer discount on the platform fee for the SIPP so it's quids in overall

 

Albermarle

 SIPPs can have cheaper charges, more flexibility and more choice for investments. However it is also very easy , especially for inexperienced investors, to end up paying more .

 Employer provided pensions normally have minimal charges. It varies , some are a lot cheaper than others .

For more experienced investors the better choice of investments in a SIPP is a plus . However for the majority the choice of funds in a workplace pension is enough, and probably less scope for blunders. In any case >90% never move out of the default fund ( or are even aware of what they are invested in )

OP - IF you do open a SIPP - make sure you know what you want to invest in , in advance . Then you can compare charges more accurately . You can have a good look around most SIPP providers websites without actually being a customer. 

granta

Albermarle said:

 Employer provided pensions normally have minimal charges. It varies , some are a lot cheaper than others .

Just curious, in 2022, what is considered (really) cheap, and what is average for employer provided pensions? What is the lowest anyone has?

My older ones were in the 1-1.25% region but later ones more like 0.5% so wondering if costs have come down and also whether larger employers tend to negotiate better deals for their employees?

Alistair31

My Aegon workplace pension minimum fee is 1.02% - which is high relative to holding VWRP in my Fidelity SIPP. I only use it to get employer contribution (8%) and because it is salary sacrifice, meaning my student loan repayment becomes trivial.