SIPP and Workplace Pensions: HR Compliance Guide

Employees are increasingly using Self-Invested Personal Pensions (SIPPs) alongside workplace pension schemes. For HR professionals and business owners, this creates a need to understand the legal, tax and operational implications of employees running two separate pension arrangements. UK employment law is clear about what employers must do, what employees are allowed to do independently and where the limits lie for employer involvement when staff enquire about SIPPs.

What this article is about:
This article provides HR professionals and business owners with a comprehensive overview of how SIPPs interact with workplace pensions within the UK employment law framework. It explains the legal duties under auto-enrolment, the boundaries of employer responsibilities, the payroll and tax consequences of employees contributing to more than one pension, and how HR teams should respond to employee requests or misunderstandings. The aim is to support employers in maintaining compliance while ensuring staff receive accurate, legally-aligned information without crossing into regulated financial advice.

Employees can legally hold a SIPP and a workplace pension at the same time. The arrangements operate independently, and the existence of a SIPP does not remove or dilute the employer’s obligations under auto-enrolment. This introductory section sets the stage for a detailed analysis of these rights and duties and outlines how HR should manage communication, expectations and compliance risks across the business.

Section A: Legal framework for having a SIPP and a workplace pension

Employees frequently ask whether they can maintain both a Self-Invested Personal Pension (SIPP) and their workplace pension. For HR professionals, understanding the legal framework is crucial because the organisation’s duties are set by statute and cannot be waived or replaced simply because an employee prefers to manage their retirement savings through a private vehicle. This section explains the legal position, the mandatory employer duties and how these interact with any personal arrangements an employee may hold outside the workplace.

1. Can an employee hold both?

UK law allows individuals to contribute to multiple pension schemes simultaneously. A SIPP is a private pension operated independently of any employer, giving the member greater control over investment decisions. A workplace pension is established by the employer, with statutory minimum contributions regulated by the Pensions Act 2008.

The existence of a SIPP has no bearing on the employee’s eligibility for auto-enrolment. If they meet the statutory criteria for age and qualifying earnings, the employer must enrol them into the workplace pension scheme even if they already have a SIPP or intend to contribute exclusively to it. The employee may opt out after enrolment, but they cannot prevent the employer from carrying out its statutory duty.

2. Employer legal duties

Employers must comply with the full suite of auto-enrolment requirements regardless of whether an employee holds or intends to open a SIPP. The workplace pension must meet qualifying scheme criteria, including minimum contribution levels and governance requirements. Key duties include:

• automatically enrolling eligible jobholders into the workplace pension
• paying at least the statutory minimum employer contribution
• maintaining a compliant and suitable qualifying workplace pension scheme
• re-enrolling eligible staff on the three-year cyclical basis
• issuing statutory communications and maintaining accurate records

These obligations are mandatory. An employer cannot encourage an employee to rely on their SIPP instead of participating in the workplace scheme. Doing so risks breaching The Pensions Regulator’s safeguards around inducements. Employers must also submit a re-declaration of compliance to The Pensions Regulator every three years, confirming they have met their ongoing enrolment and re-enrolment duties.

If an employee opts out, the employer cannot incentivise or influence that decision. The opt-out process must remain independent, and staff must complete the process directly via the pension provider.

3. Contractual and policy considerations

Some employment contracts or remuneration packages include enhanced employer pension contributions or specify particular scheme rules. These provisions continue to apply even if the employee holds a SIPP. The employer’s contribution obligations relate only to the workplace pension scheme and cannot be diverted into an employee’s SIPP unless the employer operates a specific policy permitting this and the scheme rules allow employer payments into personal pensions.

Most employers do not contribute to employees’ SIPPs because this introduces additional administrative complexity, payroll changes and legal risk. Where an employer does wish to support SIPP contributions, this should be set out clearly in contractual documents or a defined pension policy, taking account of tax implications and ensuring fairness across the workforce.

Employees can hold both a SIPP and a workplace pension without restriction. For HR teams, the critical point is that a SIPP does not alter or reduce the employer’s obligations under auto-enrolment. Employers must continue to enrol eligible employees, make minimum contributions and comply with statutory communication and record-keeping duties. Any existing contractual pension rights continue to apply independently of an employee’s private arrangements.

Section B: Payroll, tax relief and contribution handling

HR and payroll teams need a clear understanding of how contributions are treated when an employee holds both a workplace pension and a SIPP. Although the two pension arrangements are independent, they interact from a tax and reporting perspective, and errors can expose the employer to compliance risks or lead to incorrect employee expectations. This section explains who pays into what, how tax relief differs between schemes and when annual allowance considerations become relevant for HR communication purposes.

1. Who pays into what?

Employer contributions apply only to the workplace pension scheme that the organisation has established for auto-enrolment. The employer is not legally obliged to contribute to a SIPP and should not divert workplace pension contributions into a SIPP unless it is an agreed part of the employer’s remuneration strategy and fully documented.

Employees may contribute to both their workplace pension and their SIPP. Workplace pension contributions are processed through payroll under either a net pay arrangement or relief at source. SIPP contributions are typically made directly by the employee using post-tax income. Because SIPPs sit outside the employer’s scheme arrangements, payroll has no involvement unless the employer has specifically chosen to operate employer contributions into SIPPs.

2. Tax relief methods

Workplace pensions operate under two main tax relief mechanisms:

• Net pay arrangement – employee contributions are deducted from gross pay before tax, meaning tax relief is applied automatically through payroll.
• Relief at source – employee contributions are taken from net pay, and the pension provider claims 20 percent basic rate relief from HMRC. Higher and additional rate taxpayers must claim any extra relief through a Self Assessment tax return or PAYE adjustment.

SIPP contributions are always made on a relief at source basis. Employees receive the basic rate top-up automatically and must claim additional relief themselves. HR must understand these differences to communicate clearly without giving financial advice. Employees who hold both types of pension may receive tax relief in different ways simultaneously, and misunderstandings are common.

Where salary sacrifice is used, contributions become employer contributions, meaning the employee receives full tax relief via reduced gross pay rather than through pension contribution mechanisms.

3. Annual Allowance and reporting obligations

All pension contributions count towards the annual allowance, currently set at £60,000 for most individuals. This allowance applies across all pension schemes combined, including workplace pensions and SIPPs. HR teams should be aware that:

• high earners may be subject to the tapered annual allowance
• individuals who have accessed defined contribution pensions flexibly may trigger the Money Purchase Annual Allowance (MPAA)
• employees may inadvertently exceed their annual allowance when contributing to multiple pensions

While employers are not responsible for monitoring employees’ private pension contributions, HR should ensure communications clarify that the employee is responsible for managing their own annual allowance position. If total contributions across all schemes exceed the annual allowance, the employee is responsible for reporting and paying any annual allowance charge through Self Assessment.

The employer’s reporting obligations remain limited to workplace pension contributions processed through payroll. SIPP contributions made privately by the employee sit outside the employer’s reporting responsibilities.

Employers contribute only to the workplace pension unless they have chosen to support SIPP contributions under an agreed policy. Workplace schemes and SIPPs operate under different tax relief mechanisms, and employees may experience different processes for receiving relief across the two arrangements. HR must understand these distinctions to provide accurate information, ensure payroll accuracy and maintain compliance, without taking on responsibility for an employee’s wider financial planning.

Section C: HR risk, compliance and employee relations

From a compliance perspective, the existence of an employee’s SIPP does not change the employer’s statutory obligations. However, misunderstandings about SIPPs can lead to compliance breaches if HR teams inadvertently influence employee decisions or fail to follow prescribed auto-enrolment processes. This section outlines the main risks and provides guidance on how to manage staff enquiries while staying within the legal limits.

1. Ensuring compliance with auto-enrolment rules

Employers must not allow employees’ personal pension decisions to interfere with statutory auto-enrolment duties. The key compliance risks include:

• Failing to enrol an eligible employee because they say they already have a SIPP
• Encouraging opt-out by suggesting that a SIPP is “better” or “more flexible”
• Inducement breaches if HR implies that the employee will be financially better off opting out of the workplace scheme

An inducement includes any action with the primary purpose of causing a worker to opt out or cease membership, regardless of whether financial advantage is explicitly offered. Auto-enrolment requires every eligible employee to be enrolled and re-enrolled automatically at the correct intervals. Even where an employee repeatedly opts out, the re-enrolment duty remains. The presence of a SIPP is legally irrelevant to these obligations.

2. Managing employee enquiries about SIPPs

HR teams must strike a balance between providing factual information and avoiding financial advice, which is regulated by the Financial Conduct Authority. Acceptable HR guidance includes:

• explaining how workplace pension contributions work
• outlining statutory employer duties
• describing the differences between net pay and relief at source
• confirming that employees may contribute to a SIPP independently

However, HR must avoid:

• comparing investment performance between the workplace scheme and a SIPP
• recommending one pension over another
• advising whether an employee “should” opt out
• commenting on potential tax advantages beyond factual explanations

Comparing advantages or disadvantages between a SIPP and a workplace pension constitutes regulated advice unless limited strictly to factual scheme features. Clear internal guidance helps ensure consistency and prevents line managers from inadvertently providing regulated advice.

3. Record-keeping and policy alignment

Employers must maintain accurate records of workplace pension communications, enrolment dates, opt-out notices and re-enrolment actions. These records provide critical audit evidence in the event of a compliance inspection by The Pensions Regulator.

Where employees raise queries about SIPPs, HR should ensure:

• internal policies accurately reflect the employer’s contribution rules
• explanatory materials avoid any language that could be interpreted as inducement
• communications emphasise that employees are responsible for managing personal pension arrangements such as SIPPs
• managers are trained to escalate pension queries rather than answer speculative financial questions

Ensuring that staff communications are consistent reduces legal risk and promotes transparency across the workforce.

HR professionals must manage SIPP-related enquiries carefully to avoid breaching auto-enrolment rules or providing financial advice. Employers must continue to fulfil all statutory pension duties regardless of employees’ private pension decisions. Consistent communication, accurate record-keeping and clear internal policies help reduce compliance risk while supporting employees in understanding their options.

Section D: Practical guidance for HR and employers

While the legal framework defines the employer’s pension duties, HR teams also face day-to-day operational questions about how to respond when employees want to use a SIPP, want contributions diverted, or misunderstand how the schemes interact. This section provides practical guidance to manage these situations confidently, lawfully and consistently across the organisation.

1. Responding to employees who want a SIPP only

Some employees prefer to invest solely through a SIPP and may ask to avoid joining the workplace pension because they believe the SIPP offers better investment control or lower fees. HR should make clear that:

• the employer must enrol all eligible staff into the workplace pension
• employees may opt out only after they have been enrolled
• the employer cannot provide an opt-out form or give any indication that opting out is encouraged
• the SIPP remains wholly independent from the workplace scheme

Opt-out notices must be issued and processed through the pension provider, not the employer, and any refund of employee contributions must follow statutory deadlines set out in the scheme rules. If an employee insists they do not want to join the workplace pension, HR should explain that auto-enrolment is mandatory and the employee can opt out afterwards if they choose. This protects the employer legally and maintains compliance with The Pensions Regulator’s requirements.

2. Communicating the difference between schemes

Employees often misunderstand the distinction between a workplace pension and a SIPP. HR should communicate clear, factual explanations without drifting into advice. Effective messaging includes:

• the workplace pension is the employer-supported scheme with minimum contributions
• the SIPP is a personal pension chosen and funded by the employee
• contributions to each scheme receive tax relief but through different mechanisms
• investment flexibility in a SIPP is a personal decision, and the employer plays no role in its management

Clear communication documents, induction materials and line manager guidance help maintain accuracy and avoid inconsistent explanations across teams.

3. When employers offer a SIPP as an alternative or addition

A small number of employers choose to provide SIPP access as part of a flexible benefits package or for senior employees with specific investment needs. Where an employer does this, HR must address several issues:

• Scheme design: Clear documentation is needed to explain which employees may receive employer contributions into a SIPP and under what conditions.
• Contractual changes: Employment contracts or pension schedules may require amendment to reflect the alternative contribution structure.
• Payroll operations: Payroll must be configured accurately to handle employer contributions into a SIPP, ensuring contributions are paid correctly and reported appropriately.
• Regulatory boundaries: Employers must still avoid giving advice about investment choices within the SIPP. Any promotional material for investment products risks crossing into FCA-regulated territory.

Where employers contribute to a SIPP, these payments are treated as employer contributions for annual allowance purposes. Employers must also ensure they do not inadvertently create or operate an unregistered pension scheme, which would trigger HMRC penalties. Offering SIPPs can increase flexibility, but it also increases the employer’s administrative and compliance burdens. HR teams should ensure that any such arrangement is reviewed legally and operationally before implementation.

HR teams must manage workplace pension obligations consistently, regardless of employees’ private pension arrangements. Clear communication, well-defined internal policies and careful boundary management between factual guidance and regulated advice are essential. Where employers choose to offer SIPP options, additional planning and documentation are required to maintain compliance and operational clarity.

FAQs

Can an employee contribute to both a workplace pension and a SIPP?
Yes. Employees can contribute to both simultaneously. A SIPP is a private arrangement and does not affect eligibility for the employer’s workplace pension.

Does the employer have to contribute to a SIPP?
No. Employer contributions apply only to the workplace pension scheme unless the employer has chosen to offer SIPP contributions under a specific policy.

Does having a SIPP affect auto-enrolment eligibility?
No. Employers must enrol all eligible employees regardless of whether they have a SIPP or other pension arrangements.

Can an employee avoid enrolment by declaring they already have a SIPP?
No. Auto-enrolment duties apply regardless of existing pensions. The employee may opt out after enrolment.

Do employees have to tell their employer about their SIPP?
No. SIPPs are private arrangements. The employer only needs information relevant to the workplace pension.

Does contributing to both schemes affect the annual allowance?
Yes. All contributions count toward the annual allowance across all schemes. The employee is responsible for monitoring their total contributions.

Can HR advise employees on whether a SIPP is better than the workplace pension?
No. That would constitute regulated financial advice. HR may explain factual differences only.

Can employer contributions be redirected into a SIPP?
Not unless the employer formally offers this option and the arrangement is documented and supported by payroll operations.

Conclusion

Employees are free to hold both a SIPP and a workplace pension, and many choose to do so for reasons ranging from investment control to broader retirement planning. For employers and HR professionals, the key point is that personal pension choices do not alter statutory auto-enrolment duties. The organisation must continue to enrol eligible staff, make the required contributions and maintain compliant systems and communications, regardless of any private pensions an employee may hold.

HR teams must also remain mindful of the boundary between factual information and regulated financial advice. While employees commonly seek guidance about the relative benefits of SIPPs and workplace schemes, the employer’s role is limited to explaining how the workplace scheme operates, what legal duties apply and how tax relief is processed. Beyond that, employees should be directed to independent financial advice if they want assistance evaluating their retirement options.

Where employers choose to offer SIPP alternatives or additional contribution options, robust planning, documentation and payroll configuration are required to maintain compliance and fairness across the workforce. By ensuring clarity in communication, maintaining statutory processes and keeping pension guidance within the correct legal limits, HR teams can confidently support employees while protecting the organisation from regulatory risk.

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