If you want to get serious about building wealth, think about opening a Self-Invested Personal Pension (SIPP). Like the Stocks and Shares ISA, these products offer excellent tax protections that could help you build a large retirement income.
Investors enjoy breaks on capital gains and dividend taxes, giving them more financial firepower to grow their portfolios. And while SIPP users pay income tax on withdrawals (unlike ISA holders), tax relief on contributions can more than offset this and supercharge long-term wealth creation.
Indeed, investors can build a big passive income in retirement with just £5 a day. Want to know how?
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.
Growing a SIPP over time
On average, £5 a day works out to £152 each month. That may not look like much to get a retirement fund going. But SIPP investors have two things in their favour to turn this into a large nest egg: healthy tax relief and the long-term power of the stock market.
Let’s say we have someone earning over £50,271 a year, putting them in the higher tax bracket. At this level, they enjoy 40% tax relief on any contributions they make — 20% is automatically added to their pension pot when they make a deposit, and 20% is claimed back through their tax return or tax code adjustment.
At this rate, their monthly contribution is effectively bumped up by £38, giving them £190 to invest straight away instead of £152. And with the additional higher-tax relief, they receive a £456 annual tax refund (£38 x 12 months) they can use to accelerate the growth of their SIPP.
Past performance isn’t a guarantee of future returns. But based on the historical average annual return of 9% from share investing, our SIPP user could grow their retirement fund to roughly £410,000 after 30 years.
What about passive income?
With 75% of any drawdowns from this subject to income tax, our investor would enjoy an annual passive income of £13,940 after HMRC takes their share. That’s assuming they drew down 4% of their SIPP each year, and had no other sources of income aside from the State Pension.
That works out at £1,162 a month, and could go a long way to helping with the rising costs of retirement.
But what sort of stocks should investors choose to target this? I think Aviva (LSE:AV.) right now looks like a top share to consider as part of a diversified portfolio.
A FTSE 100 star performer
But why this particular FTSE 100 stock, you ask? Over time, it’s provided excellent returns for both growth and income investors.
Aviva’s share price has risen 85% over a five-year horizon, driven by its excellent cash generation and improving earnings momentum. These factors have also meant annual dividends have grown by a whopping 23.2% on average in that time, resulting in market-beating dividend yields.
For 2026, its dividend yield remains a healthy 6.4%, more than double the FTSE 100 average.
Aviva faces significant competitive and regulatory pressures that could crimp future returns. Yet with a leading position in the booming financial services market, I’m confident it could still help SIPP investors to turbocharge their wealth.
