SIPP v Workplace Pension: HR Legal Guide

Choosing the right pension arrangements is a core part of HR governance. Employers must meet strict auto-enrolment duties, maintain a compliant workplace pension scheme and communicate clearly with staff about their rights and options. At the same time, some employees—particularly higher earners, senior managers and individuals with external advisers—may express interest in funding a Self-Invested Personal Pension (SIPP) instead of, or alongside, the employer’s workplace pension scheme. This creates an area where employment law, pensions regulation, payroll administration and HR policy intersect, often generating confusion for both employers and employees.

SIPPs are private pensions controlled by the individual, whereas workplace pensions are employer-established schemes governed by statutory duties. These differences have direct implications for contribution rules, employer responsibilities and the extent to which HR teams must engage with employee requests. It is also critical to understand that an employer cannot satisfy its auto-enrolment duties by contributing to a SIPP, even where the SIPP is an HMRC-registered scheme. Understanding how SIPPs fit within the wider pensions landscape is therefore critical for employers seeking to discharge their compliance duties, manage employee expectations and avoid the legal and administrative risks associated with miscommunication or inconsistent practice.

What this article is about
This article provides HR professionals and business owners with a comprehensive legal and practical guide to the distinctions between SIPPs and workplace pensions. It explains how workplace pensions operate under auto-enrolment law, the regulatory basis of SIPPs, the contrasting employer duties associated with each and the issues that arise when employees ask for employer contributions to their private pension arrangements. The article then sets out best practice for HR teams, including policy development, communication recommendations and risk management strategies, allowing organisations to make consistent and legally robust decisions.

Section A: Understanding Workplace Pensions

Workplace pensions sit at the centre of UK employers’ statutory pension duties. Under the Pensions Act 2008 and supporting regulations, employers must automatically enrol eligible workers into a qualifying pension scheme and make minimum contributions. For HR teams, the workplace pension is not optional and cannot be replaced by a private scheme such as a SIPP. This section explains the legal framework governing workplace pensions, the types of schemes employers may operate and the compliance obligations HR professionals must manage throughout the employee lifecycle.

1. Legal definition and regulatory framework

A workplace pension is a pension scheme an employer provides for its staff. It must meet qualifying criteria set by The Pensions Regulator (TPR) to satisfy auto-enrolment duties. Employers must automatically enrol eligible jobholders who are aged between 22 and state pension age, earn at least the statutory qualifying earnings threshold for the relevant tax year and work or are ordinarily working under a contract in the UK. Non-eligible and entitled workers must also be assessed and given specific rights to join the scheme or opt in.

Under auto-enrolment law, even employers that already offer a pension must ensure the scheme meets qualifying criteria, including minimum contribution levels and acceptable governance standards. HR professionals must also understand when postponement may be applied, what triggers re-enrolment every three years, and what information must be provided to employees as part of statutory communications. Only those who meet the definition of an eligible jobholder at the re-enrolment date must be automatically re-enrolled.

2. Employer duties and contributions

Employers must contribute at least the statutory minimum into employees’ workplace pensions. The standard minimum is currently based on 8% of qualifying earnings, of which at least 3% must be paid by the employer, with the exact qualifying earnings bands set by law and updated annually. Employers may choose to base contributions on total earnings or offer higher contributions as part of a competitive reward package.

HR teams must ensure accurate payroll alignment, correct categorisation of workers, and timely payments into the pension scheme. Where an employee opts out within the permitted opt-out window – normally one month from the date they are first enrolled – refund rules apply in respect of the employee’s contributions, and employer contributions are also returned to the employer in line with scheme rules. Employers must then re-enrol eligible staff into the scheme at the next re-enrolment date, even if they have previously opted out.

3. Scheme types inside the workplace

Workplace pensions may be structured as defined contribution (DC) schemes, defined benefit (DB) schemes or master trusts.

DC schemes are now the most common and involve contributions being invested to build a pot for retirement. The value of the pension depends on the level of contributions and investment performance. DB schemes provide a guaranteed income in retirement, calculated using factors such as salary and length of service, but are now uncommon in the private sector due to cost and regulatory requirements.

Master trusts—large multi-employer DC schemes—have become the default for many organisations due to their scale, governance standards and regulatory oversight. Whether an employer operates its own scheme or uses a master trust, HR must ensure it meets the qualifying criteria for auto-enrolment.

4. HR responsibilities

HR teams must manage a wide range of practical and compliance responsibilities relating to workplace pensions. This includes employee assessment, enrolling workers on time, issuing statutory communications, managing opt-outs, arranging refunds, monitoring contribution levels and liaising with payroll providers. HR professionals must also maintain accurate records, demonstrate compliance to TPR, and respond to employee queries about scheme rules and contributions.

Clear and consistent communication is critical. Employees frequently misunderstand contribution requirements or the limitations of employer duties, particularly when comparing workplace pensions with private arrangements such as SIPPs. HR must therefore provide accurate guidance without drifting into regulated financial advice, which only FCA-authorised advisers can give.

Section A Summary
Workplace pensions are mandatory, highly regulated and central to employers’ auto-enrolment duties. HR teams must navigate complex eligibility rules, contribution requirements and ongoing compliance responsibilities. Understanding these foundations is critical before comparing workplace pensions with SIPPs or responding to employee requests for alternative arrangements.

Section B: Understanding SIPPs

A Self-Invested Personal Pension (SIPP) is an individual pension product that offers far greater investment freedom than a standard personal pension. SIPPs are not linked to employment, and employers have no legal duty to contribute to them. While SIPPs are commonly used by experienced investors or high earners seeking wider investment control, they are sometimes misunderstood by employees who believe they can replace a workplace pension with a SIPP for employer contribution purposes. HR professionals therefore need clarity on how SIPPs operate, their regulatory environment and the circumstances in which employees may seek to use them.

1. What is a Self-Invested Personal Pension?

A SIPP is a personal pension scheme set up and owned by the individual, not the employer. It must be an HMRC-registered pension scheme to receive tax relief, and it is regulated by the Financial Conduct Authority (FCA). Unlike a workplace pension, a SIPP allows the individual to choose from a far broader range of investment options. SIPPs may be operated through specialist providers, investment platforms or discretionary fund managers.

Because SIPPs sit wholly outside the employer’s statutory pension duties, they cannot replace a workplace pension scheme for auto-enrolment purposes. Employers cannot certify or treat a SIPP as a qualifying workplace pension scheme under any circumstances. Even where employees prefer a SIPP, employers must continue to assess them for eligibility, enrol them into a qualifying workplace scheme and make the statutory minimum employer contributions, which cannot be redirected to a SIPP in satisfaction of those duties.

2. Investment freedom and risk

SIPPs offer significantly wider investment choice than most workplace schemes. Individuals can invest in shares, bonds, commercial property, funds, gilts, exchange-traded products and other permitted assets. However, certain investments—such as residential property or tangible movable property—are not allowed. Holding non-permitted assets can result in unauthorised payment tax charges, which makes regulatory compliance essential for SIPP holders.

The investment flexibility available in SIPPs increases potential risk exposure. Investments may be volatile or illiquid, particularly in cases involving direct commercial property or complex financial instruments. Administrative charges for SIPPs are often higher, and the responsibility for investment decisions rests solely with the individual.

This distinction is important for HR teams when responding to employee queries: the employer’s role does not extend to advising on SIPP suitability, because doing so would constitute regulated financial advice.

3. Tax treatment and allowances

SIPPs benefit from the same tax relief structure as other UK registered pension schemes. Contributions qualify for tax relief up to the annual allowance, and unused allowances may be carried forward from the previous three tax years where eligibility requirements are met. Since the abolition of the lifetime allowance, SIPPs operate within the new framework governing lump sum and death benefit limits, which employees may ask HR about, even though employers are not required to provide advice on these matters.

Funds held in a SIPP can typically be accessed from age 55, increasing to age 57 in April 2028 when the Normal Minimum Pension Age rises. Individuals may take a tax-free lump sum and access benefits through drawdown or annuity purchase, similar to other personal pensions.

4. When employees typically use SIPPs

Employees who show interest in SIPPs usually fall into certain categories:

• High earners wishing to diversify investments outside standard workplace options
• Senior executives seeking additional flexibility or alignment with wealth management strategies
• Employees with existing personal pension arrangements wanting consistency or consolidation
• Contractors transitioning to employment who previously used SIPPs as their primary retirement vehicle

HR teams should expect questions about whether employer contributions can be redirected to a SIPP, whether salary sacrifice can be used to fund a SIPP, or whether employees can opt out of the workplace scheme entirely to rely solely on a SIPP. These scenarios carry significant legal implications, which are addressed in the next section.

Section B Summary
SIPPs provide individuals with investment freedom and personal control, operating under a separate regulatory regime from workplace pensions. They do not replace an employer’s auto-enrolment duties, and employers have no obligation to contribute to them. HR professionals must understand the boundaries of their role, ensuring clear communication without giving regulated financial advice.

Section C: SIPP v Workplace Pension – Key Differences for Employers

HR professionals frequently encounter situations where employees compare SIPPs with workplace pensions and question why employer contributions cannot be redirected to a private scheme. This section examines the key distinctions from an employer’s perspective, focusing on legal duties, payroll implications and the compliance risks associated with deviating from statutory pension requirements. Understanding these contrasts is essential to managing expectations and maintaining lawful, consistent pension practices.

1. Employer duties

Employers have a legal duty to provide and contribute to a qualifying workplace pension scheme. These duties are absolute and cannot be waived or replaced by agreement with an employee. Even if an employee prefers to use a SIPP, the employer must continue to assess them for auto-enrolment, enrol them into the workplace pension when eligible and make the statutory minimum employer contributions.

Employers are not required to contribute to a SIPP under any circumstances. While some employers choose to offer enhanced pension flexibility as part of an executive benefits package, this is discretionary and must be implemented with care to avoid creating contractual obligations or breaching equality or discrimination duties. Employer contributions to a SIPP may be offered as a benefit, but they do not count toward meeting auto-enrolment obligations and cannot substitute for minimum workplace pension contributions.

The law also prohibits employers from encouraging or inducing employees to opt out of the workplace scheme. This includes offering financial incentives, creating arrangements that reduce workplace pension participation or otherwise influencing a worker to cease active membership. Offering to contribute to a SIPP instead of the workplace pension risks being treated as an unlawful inducement under the Pensions Act 2008.

2. Payroll and administrative implications

Redirecting contributions to a SIPP introduces administrative complexity and compliance risk. Workplace pension schemes are integrated with payroll systems to calculate eligible earnings, apply auto-enrolment rules and make contributions on time. SIPPs, by contrast, require manual processing unless a formal salary sacrifice arrangement is in place.

Where employers operate salary sacrifice into a SIPP, strict compliance with HMRC rules is required. The arrangement must be contractual, properly documented and accurately reported through Real Time Information (RTI). Salary sacrifice can only apply to employee contributions and cannot be used to reduce the employer’s statutory minimum contribution into the workplace pension. Employers must also ensure that salary sacrifice does not reduce employee pay below the National Minimum Wage or statutory payment thresholds such as SMP or SSP.

Payments to a SIPP must be classified correctly to avoid being treated as unauthorised payments, which can lead to tax penalties. Employers must therefore maintain clear internal procedures if they offer SIPP contributions as an optional benefit for senior employees.

3. Employee relations and reward strategy

Employee interest in SIPPs often arises from a desire for greater investment choice or dissatisfaction with the default workplace scheme. HR professionals must manage these expectations carefully. If an employer chooses not to contribute to SIPPs, consistent communication is essential to avoid perceptions of unfair treatment or unequal reward distribution.

Where employers permit SIPP contributions for certain roles, clear eligibility criteria are needed to prevent claims of arbitrary decision-making or indirect discrimination. Enhanced pension arrangements for senior staff can be lawful, but only where they align with objective business reasons and are applied consistently. Employers must avoid creating unintended contractual expectations for other staff groups.

Employers should also consider how pension flexibility fits within their broader reward strategy. Offering SIPP contribution options may attract senior candidates, but it can blur boundaries between regulated advice and HR guidance if not handled carefully. HR must emphasise that investment advice cannot be provided by the organisation unless the adviser is FCA-authorised.

4. Compliance risks

Allowing or facilitating SIPP contributions carries specific risks that HR must mitigate:

• Auto-enrolment breaches if employers mistakenly believe SIPP contributions satisfy workplace pension duties
• Unauthorised payment exposure if employer contributions to a SIPP are made incorrectly or outside HMRC rules
• Record-keeping failures where payroll systems cannot reliably track contributions split between schemes
• Inducement risks where employees are encouraged, directly or indirectly, to opt out of the workplace scheme
• Regulated activity risks if HR staff inadvertently give financial or investment advice

Section C Summary
The legal and practical differences between SIPPs and workplace pensions are substantial. Workplace pensions are mandatory, regulated and linked to employer duties, while SIPPs are optional personal arrangements. Employers face significant compliance risks if they deviate from statutory workplace pension rules or misunderstand what can lawfully be offered to employees. HR must therefore establish clear boundaries and ensure decisions are aligned with both pension law and organisational reward strategy.

Section D: HR Best Practice in Responding to SIPP Requests

Employees approach HR about SIPPs for many reasons: they may prefer the investment flexibility, have an existing pension consolidation strategy or simply believe SIPPs offer superior long-term returns. HR must manage these conversations carefully. The aim is to provide clear factual guidance, maintain compliance with pension law, protect the organisation from risk and avoid giving financial advice. This section outlines how employers should structure their approach to SIPP requests, including policy-setting, internal decision-making, communication and dispute resolution.

1. Setting internal policies

Every organisation benefits from a clear, written position on whether employer contributions to SIPPs are permitted. Most employers choose not to contribute to SIPPs due to administrative complexity and compliance risk. Some employers, typically with executive benefit packages, do allow SIPP contributions for specific roles. Whatever approach an organisation takes, policy clarity is critical.

A robust policy should set out:

• whether employer contributions to SIPPs are permitted
• eligibility thresholds or role-based criteria, if applicable
• requirements for salary sacrifice, where used
• documentation steps, payroll requirements and internal approval processes
• confirmation that workplace pension duties continue irrespective of SIPP arrangements

Having a formalised policy reduces inconsistency and prevents individual managers from making informal commitments that create contractual obligations or breach pension regulations. Employers must ensure that any SIPP-related benefits for senior staff do not create implied contractual expectations for other employees.

2. Assessing requests

Where employees ask HR about SIPP contributions, the request must be evaluated in a structured and consistent way. HR should ensure:

• the employee understands that the organisation must still provide and contribute to a workplace pension
• any SIPP request is voluntary and employee-driven
• the organisation’s policy is applied uniformly
• no employee receives preferential treatment without a lawful, objective justification

A transparent decision-making process protects the employer from discrimination claims and ensures internal fairness.

3. Aligning with reward and benefits strategy

Decisions about supporting SIPP contributions should not be made in isolation. Employers should consider how pension flexibility interacts with the wider reward and benefits strategy. Organisations that compete for senior talent may view pension flexibility—under strictly defined governance—as a differentiator. Others may prioritise simplicity and compliance by focusing solely on the workplace pension.

If SIPP contributions are allowed for certain roles, employers should ensure this is clearly signposted in recruitment materials, employment contracts or executive benefits documentation. Ambiguity about who can access SIPP contributions can lead to disputes or claims of unequal treatment.

HR teams must also avoid drifting into regulated financial advice when employees ask whether they “should” use a SIPP. HR can explain processes, employer policy and statutory duties, but suitability assessments sit solely within the remit of regulated financial advisers.

4. Managing disputes or misunderstandings

Requests relating to SIPPs can escalate where employees believe employer contributions are mandatory or where expectations have been set informally by managers. To prevent disputes, HR should:

• communicate employer pension duties clearly at onboarding and during pay reviews
• correct misunderstandings promptly and factually
• document all correspondence relating to SIPP enquiries
• ensure managers avoid making statements that could be interpreted as financial advice or benefit commitments

Where disputes persist, employers should consider seeking legal or pensions specialist advice, particularly if the disagreement relates to alleged contractual rights or inconsistencies in past practice.

Section D Summary
Employers should respond to SIPP-related enquiries through clear policies, consistent processes and accurate communication. HR teams must protect the organisation from legal and financial risk while respecting employee choices and avoiding regulated financial advice. A coherent, well-documented approach ensures compliance and supports fair, transparent pension management across the workforce.

Frequently Asked Questions

HR professionals often receive repeated questions about how SIPPs interact with workplace pensions, employer duties and payroll operations. This section provides clear, factual responses to the most common queries, helping HR teams manage expectations while staying within the boundaries of non-regulated guidance.

1. Can an employee opt out of the workplace pension and rely solely on a SIPP?

No. Employees may opt out of the workplace pension, but employers must continue to meet their auto-enrolment duties. This includes assessing the employee at each pay period and re-enrolling them at the next mandatory re-enrolment date if they meet eligibility criteria. Opting out requires the employer to stop contributions immediately and refund any employee contributions made within the opt-out window, while employer contributions are returned to the employer through the scheme. An employee’s preference for a SIPP cannot replace or remove the employer’s statutory obligations.

2. Are employers required to contribute to a SIPP?

No. Employers have no legal obligation to contribute to an employee’s SIPP. Any employer contribution to a SIPP is discretionary and must be clearly governed by internal policy. Even when employers choose to offer SIPP contributions as part of an enhanced benefits package, these contributions do not reduce or replace the employer’s workplace pension duties.

3. Can salary sacrifice be used to fund a SIPP?

Salary sacrifice can be used to make employee contributions into a SIPP, provided the arrangement meets HMRC requirements and is properly documented. Salary sacrifice cannot be used to reduce or eliminate the employer’s statutory minimum contribution into the workplace pension. The arrangement must also ensure that the employee’s reduced salary does not fall below the National Minimum Wage or other statutory payment thresholds.

4. Does declining a SIPP contribution request risk discrimination claims?

Generally no, provided the employer applies a clear, consistently applied policy. Problems may arise if certain groups of employees are treated differently without objective justification. A transparent policy and uniform application significantly reduce the risk of discrimination or equal pay challenges.

5. How should employers document their approach to SIPPs?

Employers should maintain a clear written policy covering whether SIPP contributions are allowed, how salary sacrifice may apply, internal approval processes, payroll procedures and the continued operation of workplace pension duties. Effective documentation prevents misunderstandings, ensures consistency and reduces the likelihood of disputes.

Conclusion

Workplace pensions and SIPPs operate in entirely different legal and regulatory spheres, and HR teams must navigate these distinctions with precision. Employers have strict statutory duties to maintain a compliant workplace pension scheme, automatically enrol eligible workers and make minimum contributions. These obligations cannot be displaced by employee preference or replaced with contributions to a SIPP.

SIPPs remain valuable personal pension vehicles for individuals seeking greater investment control, but they do not alter an employer’s duties. HR professionals must therefore communicate clearly, apply internal policies consistently and ensure that no action creates an unlawful inducement to opt out of the workplace pension. When employees express interest in SIPPs, the organisation’s responsibility is to clarify factual information, avoid giving regulated financial advice and ensure that all workplace duties remain intact.

A structured approach — supported by coherent policy, accurate communication and robust internal controls — enables employers to manage SIPP-related enquiries effectively. By understanding the boundaries between workplace pensions and SIPPs, HR professionals can protect the organisation’s compliance position while supporting employee engagement with their retirement planning.

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