ASK TOM Can I get pension contributions paid into a SIPP rather than a workplace scheme?

Can I get pension contributions paid into a SIPP rather than a workplace scheme?

Our resident expert on the options for someone saving for retirement

I’m being automatically enrolled into a workplace pension but I’m not particularly happy with the scheme. It charges 0.75% and the performance has been consistently poor. Can I have my contributions directed to my SIPP instead?

Simon

Tom Selby, AJ Bell Head of Retirement Policy, says:

If you are aged 22 to 66 (state pension age), employed and earn more than £10,000 a year, you should be automatically enrolled into a workplace pension scheme. At a minimum, your employer contributes 3% of ‘qualifying earnings’, you contribute 4% and a further 1% comes via basic-rate pension tax relief. In 2022/23, ‘qualifying earnings’ are salary between £6,240 and £50,270.

Some companies will offer pension contributions well above this level, so it’s worth checking to see if you are entitled to more than you are getting.

Responsibility for choosing the workplace pension scheme into which you are auto-enrolled rests solely with your employer.

There are certain minimum criteria your workplace pension scheme needs to satisfy, including offering a ‘default’ investment fund with charges capped at 0.75%. This default fund will aim to be broadly appropriate for all employees, although because it is designed for a diverse workforce of different ages and risk preferences, by definition it will not be directly catered towards your personal circumstances and preferences.

Your employer is not obligated to offer you a pension scheme beyond the one it has picked, although some will choose to do so. Check with whoever is responsible for your pension scheme – usually HR or payroll – to see if there is an alternative option.

You may also be able to select alternative investments beyond the default fund from your existing scheme. These investments will not be protected by the 0.75% charge cap, although they may still charge at or below that level. Speak to your provider or log on to your account online to find out your options.

You cannot demand your employer pays your auto-enrolment pension into the scheme of your choice. Losing out on this valuable benefit may mean you have less savings available when you retire.

However, if your employer doesn’t offer you the option of a different pension scheme and you want to transfer your hard-earned retirement pot elsewhere, there is nothing stopping you doing so. The new pension provider will take some details from you and do all the legwork.

There are some things you need to consider before transferring. Firstly, make sure there aren’t any valuable guarantees you will lose. This is unlikely if you are transferring an auto-enrolment pension, but it’s worth checking with your provider.

Secondly, while a SIPP may offer you a greater choice of investments, they will not be protected by a 0.75% charge cap. It is, however, possible to build your own portfolio for much less.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to asktom@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.