Leveraging the power of a Self-Invested Personal Pension (SIPP) is a fantastic way to build retirement wealth. This special type of investment account not only grants access to the stock market but also provides powerful tax advantages that can propel a portfolio much higher than a regular trading account.
So with that in mind, if an investor had £5,000 today, how much money could they have in the next decade?
The tax advantages of a SIPP
Just like a Stocks and Shares ISA, SIPPs eliminate capital gains and dividend taxes from the equation. However, unlike an ISA, they also provide tax relief. This refund from the government depends on the income tax bracket an investor sits in. But assuming an individual is paying the 20% Basic rate, they’re entitled to a 20% tax refund on all deposits made.
So with £5,000 going into a SIPP (after tax relief) this capital automatically gets topped up to £6,250. With the money now in a SIPP, let’s explore the potential gains. Ten years is a good chunk of time for compounding to begin working its magic. However, the amount of money ultimately depends on the average investment return an investor earns.
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.
When relying on index funds, the FTSE 100 has historically offered around 8% a year, while the S&P 500‘s closer to 10%. For those happy with a bit more volatility and exposure to the US tech sector, the Nasdaq 100 steals the show with a 14% total gain.
| Return | 8% | 10% | 14% |
| Estimated Portfolio Value After 10 Years | £13,873 | £16,919 | £25,140 |
Securing growth
Relying on passive index funds is a proven strategy for building long-term wealth. But this approach to the stock market does have its limits.
Historical performance isn’t guaranteed to continue. In fact, the FTSE 100 and FTSE 250 have both lagged their typical performance over the past 15 years, leaving investors with considerably less than expected. The same may occur for the US stock indices over the next decade.
To counter this, investors can pick stocks directly. This requires a much more hands-on approach. But it also opens the door to potentially market-beating returns that pave the way for considerably greater returns during periods of lacklustre index performance.
A prime example of this would be Halma (LSE:HLMA). Regardless of economic conditions, demand for health & safety products remains robust. Subsequently, the business has an impressive track record of exceeding analyst expectations – a trend that continues even in 2025.
The impact of Halma’s critical role in the value chain in the healthcare, environmental, and safety sectors is clear when looking at the stock price. Over the last 15 years, shareholders have reaped an impressive 16.5% annualised return, outpacing the Nasdaq and even delivering lower volatility at the same time. For reference, over 10 years, that’s enough to grow a £6,250 SIPP to £32,180!
Of course, it hasn’t been a complete risk-free journey. Apart from trading at a fairly premium valuation today and the tight regulatory environment in which it operates, the business is highly acquisitive. Underperforming acquisitions can turn into expensive mistakes capable of compromising the balance sheet. So for investors considering this business today, these risk facts must be taken into account.
