In the United Kingdom, Self-Invested Personal Pensions (SIPPs) are a popular choice for individuals looking to take control of their retirement savings and investments. SIPPs offer flexibility and a wide range of investment options. But what if you’re an employer who wants to support your employees’ retirement goals by contributing to their SIPPs? This article explores whether employers can contribute to their workers’ SIPPs in the UK and the considerations involved.
Understanding SIPPs:
A Self-Invested Personal Pension (SIPP) is a type of personal pension plan that allows individuals to choose and manage their investments. SIPPs offer more control and investment options compared to traditional workplace pension schemes. Individuals can invest in a variety of assets, including stocks, bonds, property, and more, within the tax-efficient structure of a pension.
Can Employers Contribute to Their Workers’ SIPPs?
In the UK, employers have a legal obligation to provide a workplace pension scheme under auto-enrolment rules. However, these obligations typically pertain to defined contribution schemes, not SIPPs. SIPPs are personal pension plans that individuals open and manage themselves.
The simplest way for an employer to contribute into the SIPP is usually to set up a Direct Debit, but not all SIPPs might provide this option. It’s also worth being aware that some SIPP providers might not be able to deal with contributions varying (if the total salary varies).
See below the steps to follow if both employee and employer contributions want to be contributed to the worker’s personal pension scheme instead of the company’s Auto Enrolment one.
- First of all, the worker needs to opt-out from the company’s AE scheme.
- The worker can then be moved to their own SIPP in Husky (You need to let Husky know the SIPP details and if the earnings basis and contribution levels are the same as the existing AE scheme).
- On a monthly basis, payroll will enter the salary and pension contributions into Husky as they do for any other employees. Those contributions will not be taken from the AE scheme as Husky will exclude this worker from the monthly upload into the pension provider.
- Instead, it’s the employer’s responsibility to manage those payments to the SIPP provider directly.
- During re-enrolment, the worker will need to be enrolled again into the company’s AE scheme (Husky manages that process) and opt-out again.
Here are some important points to consider:
Auto-Enrolment:
Auto-enrolment obligations require employers to provide a qualifying workplace pension scheme, such as a group personal pension or a stakeholder pension, into which both employer and employee contributions are made. These schemes are separate from SIPPs.
Tax Benefits:
Contributions to workplace pension schemes made by both employers and employees benefit from tax relief. This means that the government adds a certain percentage to the pension pot, making it a tax-efficient way to save for retirement. SIPPs also enjoy tax advantages, but contributions to SIPPs are typically made by individuals themselves, rather than by employers.
Alternative Ways to Support Employees:
You can still support your employees’ retirement planning without directly contributing to their SIPPs through various means:
- Enhance Workplace Pension Contributions: You can choose to contribute more than the minimum required by law to your employees’ workplace pension scheme, thus boosting their retirement savings.
- Employee Education: Provide information and resources to help your employees understand the benefits of workplace pensions and make informed decisions about their savings.
- Flexible Benefits: Consider offering a flexible benefits package that allows employees to allocate a portion of their salary towards their workplace pension if they choose to do so.
- Implement Salary Exchange
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