Work place pension vs SIPP

Bgs14

Hello - 

This seems to be a simple question but can't really answer it / find a clear answer anywhere.

As a higher rate tax payer with workplace pension scheme contribution of 5% employer and 5% employee (through salary sacrifice). 

If I want to increase the amount I save for retirement; is it best to: 

• increase contribution to work place pension through salary sacrifice; or
• get paid and invest the money into a SIPP.

What are the differences and what is more advantageous?

Many thanks 

molerat

Salary sacrifice reduces the NI paid so a 2% gain there and no messing about with higher rate tax reclaims.  Will the employer add to the additional payments ?

Linton

The overall income tax effect is exactly the same whether you SS to get a sum of money into your pension or contribute the money into a SIPP

Outside of income tax, one difference is NI where reducing your salary by SS leads to lower NI payments.  You dont get NI relief by putting money into a pension.

Another is that with SS you cannot reduce your taxable income below National Minimum Wage whereas with a SIPP you can contribute all of your gross income.

There may be other non-financial reasons why you would go for one option rather than the other.  For example a SIPP will probably have much wider investment options than an employers pension.  On the other hand an employers pension could have lower total charges.  Another reason is possibly increased flexibility as what you could do with an employers pension could be restricted until you are no longer paying into the scheme.  Though that has the downside of extra hassle.

Albermarle

As a higher rate tax payer with workplace pension scheme contribution of 5% employer and 5% employee (through salary sacrifice).

Regardless of whether you contribute to the workplace pension or SIPP, increasing your contributions is by far the most important part. 10% is not enough and 40% tax relief is very generous.

Bgs14

Many thanks for your responses this is very helpful thanks! I am actually think I g about using my contribution to 10% so would be 15% total I am only 30 and have been contributing 10% (total) since I was 23. 

I assumed that was quite good but perhaps not… 

Albermarle

Bgs14 said:

Many thanks for your responses this is very helpful thanks! I am actually think I g about using my contribution to 10% so would be 15% total I am only 30 and have been contributing 10% (total) since I was 23. 

I assumed that was quite good but perhaps not… 

Considering your age, it is fine, especially as you are now increasing to 15%. The usual guidance at your age is to be invested in higher risk/higher potential growth investments, as you have many years to ride out the usual short/mid term volatility. By high risk it doesn't mean Crypto etc , it means being invested mainly in mainstream global stock market funds/index trackers.