Paying employer pension contributions into an employee’s SIPP: what employers need to know.

An employee has asked you to pay their pension contributions into their own SIPP instead of the workplace scheme, perhaps for wider investment choice or to keep their pensions in one place. This article is for employers and explains what’s involved in agreeing to it and setting it up. If you’re an employee wondering whether to ask, see our separate article for employees. pensionbible regulatedadvice

1. The short answer

Yes, you can pay contributions into an employee’s SIPP. It’s your decision as the employer, and nobody can make you do it.

2. Your duties, and the test a scheme has to pass

You must enrol eligible staff into a pension scheme that meets a legal minimum standard, known as a qualifying scheme. The choice of scheme is yours, and an employee can’t demand you use the one they prefer. Before you use any scheme, you must be satisfied it meets the criteria. A SIPP is no exception. It can stand in for the workplace scheme for one employee only if it passes the same test. Thepensionsregulator

3. What a qualifying SIPP looks like

A SIPP is a personal pension, so the personal pension rules apply. They split into two halves.

The provider’s side covers the basics. According to the Pensions Regulator (TPR), the scheme must be tax registered, regulated by the FCA, run by an authorised firm, and provide money purchase benefits. The rules on charges are for the scheme’s trustees or managers to check, not the employer. With a mainstream provider these are usually a given, but ask for confirmation. Thepensionsregulator

The employer’s side is where the work is. You need an agreement between you and the provider, under which you pay at least 3% of the employee’s qualifying earnings. TPR expects it to be legally binding, preferably in writing. The total must reach 8%. If you don’t pay all of it, a second agreement with the employee covers the shortfall. You also need direct payment arrangements, where you pay the contributions and set the due dates. If the agreement states the minimums explicitly, you can be satisfied the scheme qualifies. Pension schemes under the employer duties +4

You set the numbers, but the provider must be a party to the paperwork. That’s the sticking point, because some providers say their SIPPs aren’t workplace schemes. AJBell

4. Qualifying scheme or auto-enrolment scheme?

By law, you must automatically enrol eligible staff into a workplace pension. That means putting them in without them having to ask, which is why it’s called auto-enrolment. The scheme you use to do that has to meet extra criteria on top of the qualifying test. Among other things, it can’t require members to make a choice, so it must provide a default fund. A self-select SIPP, where the member picks every investment, would struggle with that. Thepensionsregulator

Your employee is either already enrolled, or will be a member of a qualifying scheme before the duty applies to them. So the SIPP isn’t doing the enrolling, and it only needs to be a qualifying scheme. TPR says the new scheme an employee moves to must be a qualifying scheme. Thepensionsregulator

5. Existing employees

The employee was enrolled some time ago, so your enrolment duty has been met. Moving to a qualifying SIPP is a switch, not an opt-out. TPR defines inducement as persuading someone to leave without becoming an active member of another scheme, and here the employee moves straight from one scheme into another. The request should come from the employee, and you should record that. Thepensionsregulator

The sequence is simple. Get the agreement and payment arrangements in place with the provider, then move the contributions so there’s no gap in membership. Any pot already built up stays invested in the old scheme unless the employee transfers it. NowPensions

6. New starters

A new starter is harder, because the enrolment duty applies from the start. You must enrol an eligible new starter, with one exception. TPR’s guidance excludes anyone who is already an “active member of a qualifying scheme with that employer.” For a personal pension, that means an agreement between you and the provider on employer contributions is in place. With an employee’s own SIPP, that agreement won’t exist on day one. thepensionsregulator

Postponement can create the time. You can delay enrolment for up to three months, for any business reason, provided you tell the employee in writing within six weeks. The “already an active member” exception still applies at the end of the postponement period, because the duty runs from the end of the postponement period unless the person is already an active member of a qualifying scheme. TPR’s guidance doesn’t address this exact scenario, so this is our reading, not a confirmed position. www.thepensionsregulator.gov.uk +2

Two cautions. You can’t postpone again, so the agreement needs to be in place by the deferral date. If it isn’t, enrol the employee in the workplace scheme and follow the existing-employee route. And you mustn’t make the SIPP a condition of the job. During recruitment you must not state or imply that success depends on whether the applicant opts out of an auto-enrolment scheme. thepensionsregulatorthepensionsregulator

7. The downsides

• More providers to pay. Each employee has their own SIPP, so you could end up paying many different providers. ajbell
• Payment mechanics. Providers typically want an employer form and a direct debit or bank transfer. Changes tend to be a written process. One provider says future changes must be notified in writing, and another asks the employer for a new employer contribution form for any amendment. Varying a contribution can therefore take longer than a payroll change. employer contributions 
• A separate payment to manage. You pay the provider directly, under payment arrangements that set the due dates, alongside the payments you already make to the workplace scheme. thepensionsregulator
• Evidence. You must be satisfied the SIPP qualifies and keep the paperwork showing why.

8. Steps to take

1. Get the request in writing from the employee, with the SIPP details.
2. Ask the provider whether they’ll accept your contributions as workplace contributions, put an agreement in place, and confirm the SIPP is FCA regulated, tax registered and money purchase. Ask how payments are set up and whether amounts can vary.
3. If they agree, set the contribution basis at or above the minimums, sign the agreement, and agree payment dates.
4. Tell payroll and the current pension provider, so contributions move without a gap.
5. For a new starter, decide on postponement within six weeks and write to them.
6. Record why you’re satisfied the scheme qualifies, along with the request and the agreement.
7. Pay on time and keep the records.

9. Before you start

This is general information, not legal, tax or financial advice. Take advice from your accountant and a pensions adviser before the first payment, and check the current versions of TPR’s guidance, since thresholds change.