Could you imagine retiring without financial support from a Self-Investment Personal Pension (SIPP)? I couldn’t.
I don’t know about you, but I plan to enjoy my retirement after a lifetime of work. And I don’t think the State Pension alone will allow me to do that. Today the full state benefit is £12,547.60 per year, or £241.30 a week. Have plans for regular holidays, cash gifts to loved ones, or simply kicking back and relaxing? With that level of income, you can forget about it.
At the very minimum, I think Brits should aim for double that amount in retirement income. But is this a realistic target? In a tax-efficient SIPP, absolutely. In fact, history shows that with the right investment strategy it’s possible to make a far higher regular income.
Big decisions
The question is, how large will a SIPP need to be to provide a State-Pension-matching income? It depends on what you decide to do with your pension pot once you retire.
Common options include:
- Investing in property and living off the rental income.
- Drawing down a percentage of the SIPP each year.
- Rotating the portfolio into high-yield dividend shares.
- Buying an annuity policy.
Retirees often combine two or more of these strategies to fund their cost of living. But it’s not the plan I have. For me, the best option is to put my money just in large-yielding dividend shares. This way I don’t cut into the capital portfolio of my SIPP, and can still receive a generous and dependable income each year.
Building a SIPP
Let’s say an investor decides to rotate into 7%-yielding dividend stocks at retirement. If they want a £241.30 weekly second income from these to supplement the State Pension, they’ll need a portfolio worth £179,211.
That’s a very achievable goal, in my view. Why? Not only does the SIPP focus on stock market investing, whose long-term yearly return is a robust 9%. This pension product also gives investors an extra dollop of cash each month — and at the end of the tax year, too, for higher- and additional-rate taxpayers — to grow their portfolios.
Now let’s say our investor puts £500 into their SIPP each month, made up of their own contributions and that tax relief. If they can hit that 9% average annual return, they’ll have built their £179,211 SIPP in just over 14 years.
Choosing top income shares
I have the same aim. And I believe my best chance of achieving that and a £241.30 weekly passive income is with a diversified portfolio of stocks. Personally, I am aiming for 15 to 20 shares. M&G (LSE:MNG) is one I’m eyeing up already.
Why? Since it was spun off from Prudential in 2019, this FTSE 100 share’s provided an average yield of 8.9%. This means a £20,000 lump-sum investment when it first listed would have generated £12,520 worth of dividends already.
What’s more, it’s raised annual dividends every year since then, and is tipped to keep doing to by City analysts. This means dividend yields remain impressive, at 6.9% and 7.1% for 2026 and 2027 respectively.
There are no guarantees when it comes to dividends. And with M&G, payouts could be impacted by growing market competition. But I’m confident it will continue enjoying strong earnings and cash flows as the broader financial services sector takes off, driving more delicious dividends over time.
