Setting up a Self-Invested Personal Pension (SIPP) is a brilliant first step to securing a tax-efficient second income for retirement. Tax relief alone gives contributions a lift from day one and over decades, that can make a serious difference to long-term wealth.
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.
A target of £555 a month works out at £6,660 a year. It’s not a huge income, but would provide a solid foundation that can be built on as investments grow. The key is understanding how large a pension pot needs to be to produce that level of passive income.
FTSE 100 dividends
Dividend stocks can generate a steady flow of income, but payments vary between companies and can be cut if profits and cash flows slip. That’s why sensible income investors spread their money across at least a dozen holdings. A mix of sectors means one bad year isn’t likely to sink the whole income plan.
There’s no single correct yield to aim for, but a blended portfolio yielding around 4.5% is a reasonable working figure. Using that rate, a SIPP would need roughly £148,000 to produce £6,660 a year. Crucially, that’s without touching the capital. It’s a decent target for a part-time income in retirement, although personally, I’d aim higher.
Admiral Group’s yield tempts
One FTSE 100 company that catches the eye is insurer Admiral Group (LSE: ADM). It offers a tempting trailing yield of 5.78%, although the headline number can fluctuate here, because it was inflated by a large interim dividend paid in October. However, it’s forecast to yield 7.13% in 2026, so it could climb higher still.
The share price has done well lately, jumping by more than half over the last three years and rising 15% over the last 12 months. It’s dipped in recent weeks, so this could make a tempting entry point. The price-to-earnings ratio has slipped to just over 14, below the FTSE 100 average of 17.
It’s not a guaranteed winner. Motor insurance is a competitive market, and households are hunting for cheaper premiums as the cost-of-living crisis drags on. The dividend has been bumpy too.
Research and diversify
In 2024, the board lifted the total dividend per share more than 86% to 192p. However, that followed two successive cuts of 35% and 43%. Some companies have a solid record of increasing dividends by small incremental amounts, year after year. Admiral isn’t one of those. But the board is clearly keen to reward investors in the good times.
General insurance is a cyclical sector, so I’d only consider buying with a long-term view and as part of a wider mix of income stocks with different risk levels.
Admiral’s worth considering, but like any stock it should only be treated as one ingredient in a broader mix. There are plenty more FTSE 100 dividend stocks trading at attractive valuations today, so check out the competition too.
