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First of all, I am in the UK.

Currently I pay the default salary deducted contribution (3%) into my workplace-provided pension, which is matched by my employer (the maximum they will match). I am in the happy situation where I can start to contribute a little more to my pension. I was wondering whether I would be better to contribute more to my workplace pension, or take out a separate private pension. (The rationale behind the separate pension was not having all my eggs in one basket...)

The other alternative that I know of would be an ISA. Are there any other alternatives?

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  • You are likely able to split your funds in your workplace pension, so that your investments are more diversified - similar to if you opened a separate, private pension (which likely has higher management fees).
    – Grade 'Eh' Bacon
    Commented Sep 14, 2017 at 14:07
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    If you start paying into a separate fund, then you can choose what fund that money is invested in. But be aware that you will be responsible for paying the yearly management fee.
    – Simon B
    Commented Sep 14, 2017 at 20:10

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Firstly (and this part is rather opinion-based) I would absolutely not think of making more pension contributions when you are currently totaling 6% of salary as "over contributing". There are some who argue that you should be putting a minimum of 20% away for retirement throughout your working life; you don't say how old you are / how close to retirement you are, but a common rule of thumb is to halve your age and put away that % of your salary into your pension. So I would certainly start with upping those contributions.

I actually don't think it makes much difference whether you go for just your workplace pension versus a separate private one - in general you end up paying management fees that are a % of the value, so whether it is in one place or split doesn't cost any less. The "all eggs in one basket" syndrome is a possible argument but equally if you change jobs a few times and end up with half a dozen pension pots it can be very hard to stay on top of them all. If you end up with everything in one pot and then transfer it when you change jobs, it's easier to manage.

Other options:

  • ISA as you mentioned; on the plus side these are tax free. On the minus side, you can either go for a cash ISA which at the moment has very low rates of return, and/or a stocks and shares ISA which exposes you to risks in the stock market.

  • If you have debt, consider paying it off early / overpaying. Student loans may or may not be the exception to this depending on your personal situation. Certainly if you have a mortgage you can save a vast amount by overpaying early.

  • Other investments - stocks and shares, BTL housing, fine wines, Bitcoin, there are almost limitless possibilities. But it makes sense to max out the tax-efficient options before you look into these.

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    Out of interest, when you've heard the rule of thumb has it been said whether it's gross or net you should be taking the % of?
    – AakashM
    Commented Sep 15, 2017 at 8:44
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    I have always assumed gross. Pension contributions are normally deducted from your gross salary and when people say "I'm contributing 3%" or whatever they always mean from gross.
    – Vicky
    Commented Sep 15, 2017 at 10:22
  • I'd add that putting money into your employer's pension will come out of your pre-tax salary, so is quite tax efficient. A second private pension may also allow this (but check!), an ISA won't, nor will a regular bank account or mortgage over payment. That's not to say you shouldn't overpay your mortgage or save into an ISA (actually, doing both of these things as well as putting into a pension is probably advisable), but rather just to be aware of the tax difference.
    – Ralph Bolton
    Commented Nov 12, 2019 at 12:30

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