Once people get comfortable with pensions, a question often follows: should I open a SIPP, a self-invested personal pension, instead of relying on the one at work? The honest answer for most is not either-or, but both, in the right order.
What each one is for
A workplace pension comes with an employer contribution, which is money you only get by paying in. A SIPP is one you run yourself through an investment platform, with a far wider choice of funds and shares and, often, lower charges.
The simple rule of thumb
- First, pay into the workplace pension at least up to the level your employer will match. Turning down free money makes no sense.
- Then, if you want more control or cheaper funds for additional saving, a SIPP is a sound home for it.
Control versus convenience
The workplace scheme is hands-off — someone else picks a default fund and the money goes in automatically. A SIPP hands you the steering wheel, which is a benefit if you want to choose low-cost index funds, and a burden if you would rather not think about it. Be honest about which kind of person you are.
Charges add up
Over decades, a percentage point of difference in annual fees can cost you a serious chunk of your final pot. If your workplace fund is expensive, a SIPP for extra contributions may keep more of your growth. Just never sacrifice the employer match to chase lower fees elsewhere — that trade rarely pays.
Keep it boring: capture the free money first, then tidy the rest into whatever is cheapest and simplest for you.