If you often find yourself wondering whether you’ll have enough income for retirement, it may be time to consider a Self-Invested Personal Pension (SIPP). It’s a UK pension wrapper that lets you choose your own investments while benefiting from tax relief.
The government tops up your contributions at 20% for basic-rate taxpayers, meaning £100 costs you just £80. Higher-rate taxpayers can claim extra relief through self-assessment, reducing the cost to £60.
Inside a SIPP, your investments grow tax-free, with no tax on dividends or capital gains. At retirement (currently age 55, rising to 57 from 2028), you can take 25% as a tax-free lump sum, then draw the rest as income.
The annual allowance for 2026/27 is £60,000.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Why would you need a SIPP?
For retirement income, SIPPs matter because State Pension alone won’t cover everything. The full new State Pension is £241.30 a week (£12,548 annually) for 2026/27.
To score yourself an extra fifty quid a day, you’ll need around £18,240 a year (£1,520 monthly). To get that from your SIPP, you need to build a substantial pot first.
Using financial adviser William Bengen’s recommended 4% retirement withdrawal strategy, we’re talking around £456,000. So how much would you need to invest monthly, and for how long?
Age-based estimations
Lets work with an 8% annual total return, a realistic average based on the FTSE 100‘s history. Assuming retirement at 65, this is how much investors of various ages will need to invest.
| Start age | Years to 65 | Monthly contribution (gross) |
|---|---|---|
| 35 | 30 | £305.97 |
| 40 | 25 | £479.48 |
| 45 | 20 | £774.17 |
| 50 | 15 | £1,317.77 |
As we can see, anybody over 45 would need to contribute a lot. But opting for high-yielding income stocks could help cut this down, as they pay regular dividends that can be withdrawn as cash.
So what makes a good dividend share? One I particularly like the look of lately is Paragon Banking Group (LSE: PAG).
A specialist buy-to-let lender
Paragon’s a UK specialist lender focused on buy-to-let mortgages and asset finance. It’s maintained dividend payments for 31 years through multiple economic cycles, demonstrating resilience. The current dividend yield’s around 6%, with the 2025 total dividend set at 40.8p per share.
Looking at recent results, I see no reason to fear a dividend cut. In 2025, statutory profit before tax rose 1.1% to £256.5m and free cash flow per share reached £11.04.
But what are the risks?
Specialist lending depends heavily on the UK property market. Recently, the bank’s net interest margin faced pressure, falling to 3.13% in 2025 with 290-300 basis points guidance for 2026.
Fortunately, coverage looks good. Its Common Equity Tier 1 ratio was 13.6% as of September 2025, well above the 9.1% regulatory minimum, with a total capital ratio of 15.4%.
The bottom line
The tax advantages of a SIPP mean you can compound faster with smaller personal contributions than in a taxable account.
But when targeting retirement income, reliability’s key. Make sure to look for stocks with a long history, sufficient coverage, manageable debt and established revenue streams.
Paragon’s 13.6% CET1 ratio provides adequate buffers, but property market exposure remains the primary risk. Still, with a high yield and solid dividend history, it’s certainly worth a closer look.
Start early, invest consistently, and focus on sustainable income assets to make your retirement paycheque more secure.
Should you invest £5,000 in Paragon Banking Group Plc right now?
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Mark Hartley does not hold any positions in the companies mentioned.
