Building a chunky pension pot is essential to ensuring a more comfortable retirement lifestyle. Even having a relatively modest £100,000 put aside can still make a significant difference to an investor’s quality of life. And best of all, even someone who’s just turned 50 can aim to hit this goal in time for retirement. Here’s how.
Reaching six figures
After reaching the age of 50 with no savings to speak of, being worried about financial security is perfectly understandable. The good news is, there’s still plenty of time to fix this, even with just £500 a month. Assuming someone plans to retire at the age of 65, that leaves 15 years of compounding to capitalise on. And the pension-building process can be supercharged when leveraging the tax relief benefits of a Self-Invested Personal Pension (SIPP).
For someone in the Basic income tax bracket, each £500 deposit gets automatically topped up to £625 by the British government. And investing this amount into something as simple as an index fund with an estimated 8% annualised return will reach the £100,000 threshold within just nine years.
That means, providing a stock market crash doesn’t suddenly materialise, someone who previously had nothing saved would have £100,000 in the bank by the time they turn 59. And if they keep investing consistently to the age of 65, this pension pot will more than double to £216,200.
Following the 4% withdrawal rule, a £216,200 pension pot will generate a retirement income of roughly £8,648. Combining this with the current State Pension translates into a total retirement income of roughly £20,000 a year.
That’s more than the £13,400 needed to enjoy a basic retirement lifetime, according to the Pensions and Lifetime Savings Association. But it’s hardly enough to live comfortably. And this is where stock picking could drastically improve the size of a pension pot by 2040.
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.
Aiming higher
Not every stock delivers blockbuster returns. But smart investors who can spot the high-quality business trading at a discounted price can go on to earn significantly more than an 8% annualised return. A perfect demonstration of this over the last 15 years would be Halma (LSE:HLMA).
The industrial engineering enterprise has been on a bit of a rampage since 2010, acquiring struggling firms and then improving them, delivering impressive results along the way. Consistent cash generation and expanding earnings have propelled Halma shares to deliver a 1,070% total return during this timeframe.
That’s the equivalent of a 17.8% annualised return. And investors who have been drip feeding £625 within a SIPP since 2010, are now sitting on a pension pot worth £555,000!
In 2025, Halma continues to deliver impressive results. The company recently reported its 22nd year of consecutive profit growth. Its balance sheet remains and carries low levels of leverage. And management continues to deploy capital diligently with both revenue and earnings projected to climb even higher.
Of course, no business is without some weak spots. Acquisitions can backfire if they fail to live up to expectations. At the same time, close to half of its revenue stream originates from the US, exposing it to geopolitical, regulatory, and currency fluctuations – all of which have introduced uncertainty following new trade policies.
Nevertheless, Halma’s track record of outperformance makes it a business worth investigating further, in my opinion.
