Millions of people in the UK receive passive income from some kind of private pension. I did some research, and found that 69% receive extra income from a private pension to supplement the meagre State Pension. That’s according to government figures.
As a personal finance writer, it’s good to see plenty of us taking steps to boost our retirement income with a:
- Self-Invested Personal Pension (SIPP).
- Workplace defined benefit scheme.
- Workplace defined contribution pension.
- Other personal pension (such as stakeholder pensions).
But having a pension is one thing. Generating a meaningful income from it is another. The money most people are getting from their SIPPs and other pensions leaves a lot to be desired…
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Could you survive?
Official figures showed the median weekly income that private pension holders make is just £209 a week. Combined with the full State Pension of £12,547.60, that gives a total yearly income stream of £23,415.60.
Extra investments in a product like a Stocks and Shares ISA could bump that up. But it’s not likely to make a massive difference for millions of people. My research shows the median weekly income for investment holders at £13.
Could you imagine living comfortably on such a small retirement income? I certainly couldn’t. Fresh data from Pensions UK backs up my theory — it said last week the average amount a single person needs for a comfortable lifestyle is £45,400 a year.
How to build wealth
The thing is, achieving a passive income like this requires a sound investing strategy and a commitment to making regular investments. But it’s very possible to reach with a diversified portfolio and by taking a patient approach.
Let’s say you’re a higher-rate taxpayer with £500 to put into a SIPP each month. Tax relief bumps total contributions up to £625. If you can achieve a 9% average annual return from the stock market, you’ll have a portfolio of £700,701 to retire on after 25 years.
If that was then invested in 7%-yielding dividend shares, you’d have a pension income of £49,049. That figure doesn’t take into account tax. But it also excludes the boost provided by the State Pension.
A top dividend opportunity?
Naturally dividends from shares aren’t guaranteed. But there are plenty of dividend heavyweights like Primary Health Properties (LSE:PHP) that could deliver a reliable retirement income as part of a wider portfolio.
This particular stock has delivered a growing dividend every year since 1997. The reason? As its name implies, it sources rental income from medical properties, demand for which remains unaffected by broader economic pressures. What’s more, rents are essentially guaranteed from government bodies like the NHS.
One final thing that makes Primary Health a top dividend payer is its real estate investment trust (REIT) status. It means a minimum 90% of rental profits are paid to shareholders each year.
It’s a share I hold in my own SIPP today and see as one to consider. That’s even though interest rate changes can impact profits. Over the long term, I think it’ll remain a great source of passive income.
Should you invest £5,000 in Primary Health Properties Plc right now?
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Royston Wild owns shares in Primary Health Properties.
