Can I Have a SIPP and a Workplace Pension?

It is possible for individuals to hold both a Self-Invested Personal Pension (SIPP) and a workplace pension simultaneously. This dual approach offers a comprehensive strategy for retirement planning, combining employer contributions with greater personal control over investments. Understanding how these two pension types operate alongside each other is important for maximizing retirement savings.

Holding Both Pension Types

Holding both a SIPP and a workplace pension is a common and advantageous strategy for building retirement savings. This approach allows individuals to leverage their employer’s pension scheme benefits while gaining flexibility and investment choice through a personal pension. Diversifying retirement savings across different arrangements provides a robust foundation for future financial security. Individuals can continue to receive valuable employer contributions into their workplace scheme. A SIPP provides an avenue for additional personal contributions and a broader range of investment opportunities.

Key Distinctions Between Pensions

Workplace pensions involve mandatory contributions from both the employee and the employer. Employers are legally required to provide a pension scheme and contribute a minimum percentage of an employee’s qualifying earnings. These contributions are automated through payroll deductions, simplifying the saving process.

A SIPP, conversely, is a personal pension arranged by the individual, offering greater control over investment decisions. Unlike workplace schemes, which feature a limited selection of default funds, SIPPs provide access to a broad range of investment options, including individual stocks, bonds, and various funds. This greater choice allows for a tailored investment strategy aligned with personal risk tolerance and financial objectives. This increased control also necessitates active management and investment knowledge from the individual.

Workplace pensions are managed by a provider chosen by the employer, with investment strategies geared towards a broad member base. SIPP holders are responsible for managing their own investments or appointing a financial adviser. While workplace pensions may offer tax relief through salary sacrifice, SIPP contributions benefit from tax relief claimed by the provider, with higher-rate taxpayers needing to claim additional relief through self-assessment.

Coordinating Contributions and Tax Relief

When contributing to both a workplace pension and a SIPP, consider the annual allowance, which limits the total amount that can be paid into all pension schemes each tax year without incurring a tax charge. For the 2025/2026 tax year, the standard annual allowance is £60,000, or 100% of an individual’s UK earnings, whichever is lower. All contributions, including those made by an employer and any tax relief received, count towards this limit.

Tax relief is applied to pension contributions, boosting the amount saved. Basic rate taxpayers (20%) automatically receive this relief on personal contributions, added by the pension provider for SIPPs (relief at source) or applied at source for workplace pensions (net pay arrangement or salary sacrifice). Higher and additional rate taxpayers can claim further relief through their Self Assessment tax return.

Salary sacrifice, offered by employers for workplace pensions, can enhance tax efficiency by reducing both employee and employer National Insurance contributions. If an individual’s adjusted income exceeds £260,000, their annual allowance may be tapered, potentially reducing it to as little as £10,000 for those with adjusted incomes of £360,000 or more. Contributions exceeding the annual allowance are subject to an annual allowance charge, taxed at the individual’s marginal rate of income tax.

Managing and Accessing Your Pensions

Managing multiple pension pots involves considering consolidation and access options. Individuals can transfer funds from old workplace pensions into a SIPP to simplify administration and gain more control over investments. However, check for any transfer fees or the potential loss of valuable benefits, such as guaranteed annuity rates, especially from defined benefit schemes. Defined benefit pensions with a transfer value over £30,000 require independent financial advice before transfer.

Funds held in both SIPPs and workplace pensions can be accessed from age 55, though this minimum pension age will rise to 57 from April 2028 for most individuals. Upon access, individuals can take up to 25% of their pension pot as a tax-free lump sum. This tax-free amount is subject to a maximum Lump Sum Allowance (LSA), which is £268,275 for the 2025/2026 tax year, applying across all pensions.

The remaining 75% of the pension fund is taxable as income, offering various access options such as drawing a flexible income (flexi-access drawdown) or purchasing an annuity for a guaranteed income. Once taxable income is taken, a lower Money Purchase Annual Allowance (MPAA) of £10,000 per tax year applies to future defined contribution pension contributions.