Workplace pension to a SIPP transfer guide

What is a workplace pension?

Broadly speaking, workplace pensions fall into two separate types: defined contribution and defined benefit. 

Defined contribution pensions 

Otherwise known as ‘DC pensions’, defined contribution pensions are the most common type of workplace pension. Money is paid in each month but its eventual value is not guaranteed.

How much money you have when you eventually retire will depend on:

• how much you have paid in, including contributions from yourself and your employer
• the performance of your chosen investments
• the impact of charges on the scheme.

Traditionally, employers have set up group personal pensions with insurance companies that allow their staff to build up their own personal pot. However, many companies are now using master trust schemes. Here employers sign up to join schemes that are being used by multiple employers. The popularity of master trusts has been driven by the introduction of auto-enrolment in 2012. Auto-enrolment requires all employers to offer a workplace pension and sign eligible staff up automatically. Staff must opt-out if they don’t want to participate. 

Defined benefit pensions

Defined benefit pensions, also known as DB pensions work differently. You still pay in every month, but your employer is committed to paying you a guaranteed income in retirement. The amount you get is based on the scheme’s accrual rate, your salary and the length of time you are a member. However, increased life expectancy and the guarantees DB schemes offer make them increasingly expensive to run. This means many DB schemes in the private sector have closed to new members. DB schemes are, however, still used in the public sector – although terms have changed over recent years to make them less generous. Final salary and career average are both types of defined benefit pension. 

Mixed benefits 

Some schemes offer both defined contribution and defined benefit rights. These are known as hybrid or mixed benefit pension schemes. 

Can I transfer my workplace pension into a SIPP?

Whether or not you can transfer your workplace pension into a SIPP and whether it would be a sensible course of action, very much depend on the type you have. 

Transferring defined contribution schemes into a SIPP 

It’s usually pretty straightforward to transfer a DC workplace pension into a SIPP. You usually just need to give your new provider the relevant pension details and it will arrange the transfer for you.  

You will be asked if you want a cash or in-specie transfer. The former involves selling the investments in your workplace pension before buying fresh investments in the new SIPP (either the same, like for like or you could take the opportunity to choose an entirely different selection of investments). With in-specie transfers the investments move over directly, removing the need to sell and rebuy. However in-specie transfers only work if your new SIPP provider offers access to the same investments and may not be an option if you are invested in an insurance company pension fund or a lifestyle fund with a target retirement date. 

It’s common to transfer multiple old workplace pensions into a SIPP for easier management. However, you may also be able to transfer your current workplace pension and ask your employer to contribute to your SIPP instead. Talk to your employer if this is something you would like to pursue. 

Transferring defined benefit pensions into a SIPP 

Transferring DB pensions into a SIPP is significantly more complicated. 

It is possible to transfer out of some defined benefit pensions and use the proceeds to invest in a new SIPP.  However, it is considered risky because it means giving up an income that is guaranteed for life and forces you to take charge of your retirement income. Your spouse or partner could also lose out on generous death benefits if you die first. 

For this reason the Financial Conduct Authority stipulates that if your DB pension has a transfer value over £30,000 you must seek independent financial advice before you transfer out. 

There are some circumstances where transferring out of a DB scheme may be recommended (for example you have serious health problems or are single and want to preserve savings for children). However, in the vast majority of cases a transfer will not be recommended. 

Most reputable pension providers would not open a new SIPP account with the proceeds of a DB transfer, unless there is evidence of a positive recommendation from a qualified financial adviser. 

It’s important to note that if you are in a public sector defined benefit pension, you won’t be able to transfer it if it is an ‘unfunded scheme’ such as the NHS Pension or the Teachers’ Pension. This is because responsibility for benefits is underwritten by the government and there is no ‘pot’ of money for you to take away. 

You may be able to transfer a funded public sector scheme, such as the Local Government Pension Scheme, although, again, it may not be recommended. 

What to consider when transferring a workplace pension into a SIPP 

Defined contribution scheme transfers: 

Pros:

• Consolidating your savings into one pot can make managing your retirement savings more straightforward.

• You are likely to get access to a wider choice of investments.

• Charges may be lower.

Cons:

• You will need to take responsibility for managing your pension savings – you don’t need to be an investment expert but it does take a degree of confidence and willingness to take charge.

• There may be a charge to close your old workplace pension.

• You could lose valuable benefits such as a guaranteed annuity rate – always check before you transfer.

• There is no default investment fund in a SIPP and you may not be able to use a lifestyle fund (where the risk profile of your investments changes in line with a target retirement date). 

Defined benefit scheme transfers: 

Pros: 

• You will gain complete control over your retirement savings.

• You can decide how much income to take and when to take it.

• You can pass your retirement savings onto loved ones after you die.

Cons: 

• You will usually need financial advice to transfer out of a defined benefit pension.

• Transferring out of DB schemes means giving up an income that is guaranteed for life.

• You need to take responsibility for managing your retirement income and ensuring it lasts as long as you need.

• You will lose valuable benefits, for example a pension for your spouse or partner if you die first.

Can I transfer my workplace pension into the ii SIPP? 

You can transfer any number of defined contribution workplace pensions into the ii SIPP. 

Give us the details of the schemes you would like to transfer into your ii SIPP and let us know whether you want a cash or in-specie transfer and we’ll do the rest. 

If you are wanting to transfer an eligible defined benefit pension, we will need to see confirmation that you have taken independent financial advice and that a transfer has been recommended.