One of the advantages of having a Self-Invested Personal Pension (SIPP) is that you are in control. The downside is that the buck stops with you. And there’s plenty at stake. Get things right and you could have a comfortable retirement. Otherwise, you might have to work for longer than you had hoped.
One possible strategy is to start with £20,000 and invest in a few shares. How many? Well, that depends.
There are numerous theories as to the ‘correct’ number of stocks to own. The consensus appears to be 15-30. Most people agree that it’s better to have a diversified portfolio. But the exact number of positions will be determined by an investor’s attitude to risk and the size of their fund.
The biggest and best?
Personally, I like to invest in the FTSE 100. This index comprises the UK’s largest listed companies, which — generally speaking — have the balance sheet strength to cope better than most with the financial challenges that will inevitably come their way. Of course, nothing should be taken for granted when it comes to the stock market.
Since August 2020, the Footsie’s delivered a compounded average annual return (with dividends reinvested) of 13.2%. However, this period includes a strong post-pandemic recovery.
The average from 2015-2024 was 6.75%.
At this rate, a £20,000 SIPP would grow to £272,738 over a period of 40 years.
Possible options
A decision then has to be made. Some people like to withdraw a small amount (4% is often quoted) from their pension each year. In this case, £10,910 per annum would be realised.
Others prefer to buy dividend shares. The yield for the FTSE 100 is currently (29 August) 3.4%. But the top five are yielding 7.9%. Based on this higher figure, passive income of £21,546 a year could be generated. However, there are no guarantees when it comes to payments to shareholders.
There are other strategies available, such as buying an annuity, but it’s always best to seek financial advice when it comes to pensions.
Something to consider
My favourite FTSE 100 dividend share is Legal & General (LSE:LGEN). Coincidentally, the wealth group offers SIPPs to some of its clients.
During the first six months of 2025, its core earnings per share was 10.94p. This was 4.2% higher than the analysts’ consensus of 10.5p. They had been predicting a core operating profit of £816m but the group reported £859m.
The stock is particularly good for dividends. It’s the second-highest yielding on the FTSE 100. It last cut its payout in 2009 during the global financial crisis.
But this impressive track record could come under threat from a global slowdown. At 30 June, the group had £210bn of equities on its balance sheet. The capital gains and income generated from this portfolio are used to meet its obligations to pensioners and others. If the returns were lower than anticipated, the dividend could be cut.
Likewise, competition could impact its payout.
However, I think an ageing population, large pipeline of new business, and strong solvency ratio means the anticipated growth in the group’s earnings is secure for now. Legal & General could therefore be a stock to consider including in a well-diversified SIPP.
