A Self-Invested Personal Pension (SIPP) is arguably one of the most powerful retirement wealth-building tools in Britain.
Beyond providing the same tax relief and deferral benefits as company-sponsored pension plans, a SIPP grants direct access to the stock market. And with the right investment strategy, individuals can potentially enjoy a chunky source of retirement income, unlocking a far more comfortable lifestyle.
On average, a 45-year-old in Britain has around £50,000 saved up for retirement, according to the Office for National Statistics. So let’s explore how using a SIPP can transform this into £10,000 annual passive income.
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.
Growing wealth
At the age of 45, there’s still roughly another 20 years of a career ahead. And that’s plenty of time for compounding to work its magic.
Assuming a portfolio is able to replicate the stock market’s average 8% annual total return, a £50,000 SIPP could grow to just shy of £250,000 within two decades. That’s just in time for an investor’s 65th birthday. And when following the 4% withdrawal rule, it’s enough to generate the target £10,000 extra income, even without making any additional contributions.
Meeting expectations
While the prospect of having a quarter-of-a-million-pound pension pot is understandably exciting, that’s ultimately dependent on a portfolio generating an 8% return.
The FTSE 100 has historically provided such gains, making index funds seem like a sensible option. Yet there have been prolonged periods where the UK’s flagship index has lagged this target, as seen throughout most of the 2010s.
Put simply, investors may end up with less than expected. And while stock picking doesn’t guarantee higher returns, it does open the door to more exciting wealth-building opportunities.
Shareholders of Goodwin (LSE:GDWN) have learned this first-hand. Since 2005, the engineering company has delivered a staggering 4,232% total return. That’s the equivalent of 20.7% a year, enough to turn £50,000 into £3,000,000!
This extraordinary gain’s been driven by a combination of factors, including operational excellence that expanded and maintained impressive free cash flow margins, turning a once tiny business into a £1bn enterprise.
Still worth considering?
In 2025, Goodwin continues to impress. Rising demand for its metal and composite materials from the aerospace, defence, mining, and energy sectors has resulted in a record order backlog. And with free cash flow generation continuing to demonstrate exceptional strength, the balance sheet remains in tip-top shape with ample financial flexibility to continue its five-year dividend hiking streak as well as pay down debts.
What’s more, with the bulk of shares still owned by the Goodwin family, management’s interests are nicely aligned with those of long-term shareholders, prioritising sustainable value creation rather than chasing short-term quarterly targets.
Of course, the business still has its weak spots. Goodwin is a niche supplier, but it nonetheless remains sensitive to spending decisions of volatile sectors like oil & gas. Geopolitical shifts can significantly benefit or disrupt demand for its products. And with customer contracts often having inconsistent timings, cash flow has proven to be quite lumpy over the years.
Nevertheless, its impressive track record makes it a business worth investigating further, in my opinion. That’s why I’m digging deeper to see if it deserves a spot in my own SIPP.
