A SIPP is one of the most efficient ways to build a sizeable nest egg at retirement. It is also an incredibly efficient way to save. For a basic rate tax-payer, for every £100 contribution, the government will top it up by £25.
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.
Compounding wealth
As average life expectancy continues to rise, one of the greatest fears for most individuals is running out of money in retirement.
If an individual is aiming to retire at 60, a pension pot would need to last, on average, 25 years. Withdrawing £30,000 a year, that equates to a retirement pot of £750,000.
Calculating the amount an individual needs to put aside to reach such a goal depends on various factors. The following table illustrates how a £6,000 yearly investment (£500 a month) would grow over different time horizons and rates of return.
| 15 years | 30 years | |
| 10% | £190,635 | £986,964 |
| 8% | £162,913 | £679,699 |
| 6% | £139,656 | £474,349 |
As can be seen, only a 30-year time horizon at an annual return rate of 10% would grow to be larger than £750,000. But do not forget that tax relief would increase yearly payments by £1,500, for a basic rate taxpayer. This would boost the total pot in the 30-year, 8% scenario by £180,000.
High-yielding stocks
Constructing a SIPP capable of delivering an 8% annual return would be challenging. For starters, stocks that offer dividend yields north of 7% would need to be carefully researched, because of sustainability risk.
Taylor Wimpey is one example of a stock offering a market-beating return of 9.8%. This is despite recently cutting its dividend. But housing is a notoriously cyclical industry and I fear a downturn on the horizon, with a growing affordability crisis.
Another option is to look for companies who pay modest dividends, bumped up with special dividends, when earnings surprise. Fresnillo is one such example. Soaring gold prices enabled it to pay out a special dividend of $308m in 2024. This year, the interim dividend was raised 300%.
Asset management
For an out-and-out dividend payer, my firm favourite remains Legal & General (LSE: LGEN). It has a remarkable history of growing dividends. Indeed, it has not seen a cut since the global financial crisis in 2008.
The asset manager’s share price chart is pretty flat over a long-term horizon. However, total shareholder returns over the last 10 years have been 83%. Today, the trailing dividend yield sits at 9.3%.
Supporting dividends has been a steady increase in profits from its pension risk transfer (PRT) business. In the first six months of 2025 it won a number of new contracts, securing £5.2bn of PRT volumes.
PRT is a growing industry. Over the next 20 years, UK market inflows are predicted to top £500bn. As the UK’s largest provider, it looks well placed to secure a huge chunk of these flows.
However, as the market grows, so too has the number of competitors. Recently, Brookfield Corporation was granted a dedicated PRT licence, the first to be issued since 2008.
Legal & General shares have been a core part of my SIPP for a number of years. Its share price may never shoot to the moon, but the market-beating dividend makes it a stock worthy of consideration for any income-chasing investor.
