Can an employer contribute into a self-invested personal pension (SIPP)?

Whether you’re working for someone, or you are your own boss, paying into your pension can help set you up for a restful retirement. So, let’s explore the ins and outs of SIPPs and employer contributions.

Each provider will have their own rules on who can pay into your SIPP. But in most cases, they can accept payments from third parties or employers. Employer contributions can be a great way to boost your pension. It’s important to remember that as the money is invested, it can go up or down in value. You could get back less than what is paid in.

Generally, most employers will have their own schemes set up filled with pension policies for each of their employees. But if you work for a small business, an employer may leave it up to you to find a pension policy you feel will work best for you. 

When it comes to SIPPs and employer payments, there are two things you should consider: 

• Employer contributions are not eligible for tax relief, meaning they are not subject to income tax.
• All contributions need to be within your annual allowance.

Eligibility for employer contributions

Self-invested personal pensions (SIPPs) are not usually suitable for meeting an employer’s automatic enrolment requirements. If you want your employer to contribute to your SIPP, speak with your pension provider and employer first to confirm it’s possible, as SIPPs are often treated as a private pension or used by the self-employed. 

How employer contributions are made

Each provider will have its own way of how employers can make contributions to your SIPP.

Payment methods typically include:

• Bank transfer (BACS or CHAPS)
• Direct Debit
• Cheque

Your employer may be asked to write a cover letter or fill out a form confirming that the money is to be treated as an employer contribution, and how you want that money split between the funds you’re invested in.

Depending on how your contributions are paid by your employer, you can benefit from the tax advantages of paying into a pension. 

• If your pension contribution is taken from your wages after tax, then you will benefit from ‘relief at source’. This means your payment will receive 20% tax relief when it goes into your pension fund.
• If your contribution is taken before tax, then you have a ‘net pay arrangement’. This will mean, although you won’t get tax relief, you have benefitted from paying less tax on your income.
• If your employer pays into your SIPP from your wages, it needs to come from your after-tax pay, as SIPPs are set up to add tax relief automatically.

Annual allowance and limits 

Your annual allowance is the maximum amount that you and your employer can pay into your pension without receiving a tax charge. For the 2024/2025 tax year, the annual allowance is £60,000 however, if you’re a higher-rate taxpayer, this may be different. It’s important to consider your annual allowance when paying into a pension so speak with your financial adviser to see how this applies to you.

Tax rules depend on your circumstances and are subject to change.