For most investors, the idea of generating passive income equivalent to the State Pension feels like a distant target. But the more interesting question isn’t how big a portfolio needs to be — it’s how long it might realistically take to build one.
Rather than focusing on a single lump sum, a more useful way to think about closing the gap to the State Pension is to consider how consistent monthly investing could build a second income over time.
So how much could regular ISA investing actually grow into?
Assuming a 20-year investment horizon and an average annual return of 6%, the long-term outcomes begin to look more tangible:
- £300 per month could grow to around £132,428
- £500 per month could grow to around £220,714
- £750 per month could grow to around £331,070
Using the widely followed 4% withdrawal rule, the largest of these portfolios could potentially generate income broadly comparable to the current State Pension. The smaller portfolios may fall short of fully replacing it, but they could still provide a meaningful supplementary income stream in retirement.
And that highlights an important point. Building long-term passive income is rarely about hitting one perfect number overnight. More often, it comes down to starting early, investing consistently, and allowing compounding to do the heavy lifting over time.
Why dividend growth matters too
Of course, building a meaningful second income is not simply about chasing the highest yields available today. In my experience, consistently growing dividends can be even more powerful over the long term.
One company I think demonstrates this well is Diploma (LSE: DPLM). The FTSE 100 specialist distributor currently offers only a modest yield compared to traditional income shares. However, its long-term dividend growth record is exceptional.
According to AJ Bell data, the dividend grew at a compound annual growth rate of 13.1% between 2016 and 2025. Analysts expect payouts to continue rising in both 2026 and 2027.
What particularly stands out to me is the quality of the underlying growth strategy. Management continues expanding into structurally attractive markets such as aerospace, data centres, diagnostics, automation, infrastructure, and clean energy. These are long-term themes rather than short-term cyclical trends.
At the same time, acquisitions remain a major growth driver. Since 2019, the company has acquired 48 businesses, investing £1.4bn to expand organically into fragmented markets where it sees long-term opportunity. Importantly, management appears highly disciplined on returns rather than simply pursuing scale for the sake of it.
What could go wrong
There are risks. The shares trade on a premium valuation, meaning any slowdown in earnings growth could hit sentiment hard. Industrial businesses are also not immune to broader economic weakness.
Another point worth watching is acquisition integration. The group has completed a large number of deals in recent years and maintaining its strong company culture while continuing to scale will be critical. If management misjudges acquisitions or overpays for growth, returns could eventually begin to weaken.
Even so, I think the company highlights an important lesson for long-term ISA investors. A lower starting yield combined with strong dividend growth and capital appreciation can often build far greater wealth over time than simply chasing the highest income today.
