A Self-Invested Personal Pension (SIPP) is essentially a DIY pension, giving investors control over the investments they hope will drive retirement wealth. As with the ISA, the contribution deadline for the 2025/26 tax year is approaching.
However, in reality, the average saver doesn’t max out their annual SIPP allowance (which can be as much as £60,000, depending on income). Therefore, SIPPs tend to receive smaller lump sums or are drip-fed throughout the year.
But they can be worth it, and not just for the 20% government tax relief. Because had someone invested £10,000 in a FTSE 100 index tracker on 7 April — the first trading day of the current tax year — they would have generated a tremendous return.
Take the Vanguard FTSE 100 UCITS ETF (LSE:VUKG), for example. This is an accumulating version, meaning any dividends paid out by the 100 Footsie companies are automatically reinvested back into the fund. Doing this helps returns compound faster.
On 7 April 2025, one share of this FTSE 100 ETF cost £39.47. Fast-forward to now, and each trades for £52.78.
For those keeping count, that’s a 33.7% return. So the £10,000 investment would now be worth just under £13,400 (excluding platform fees). And there would also have been £2,500 tax relief from the government.
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.
Buying on dips
Now, I should mention that early April was a somewhat fortuitous starting point. Back then, President Trump declared his tariffs to the world and this sent the stock market into a rapid tailspin.
However, history shows repeatedly that such times are always been the best to invest (the return here proves this to be the case, yet again). But it doesn’t feel sensible to be investing at the time when fear and uncertainty are both rising. Hindsight is a wonderful thing, after all.
But even over five years, this ETF would have turned £10,000 into £17,700. So it has proven to be a steady wealth-builder over time.
What about now?
Right now, though, fears are rising again. We’re nowhere near April’s level of panic, but the war in Iran combined with rising inflation and weak employment figures are casting doubts in investors’ minds.
Put simply, the risks are multiplying.
As a result, the FTSE 100 has fallen almost 10% since the end of February, putting it close to correction levels. So, is the Vanguard FTSE 100 ETF worth a look now?
I think it is. There are many high-quality defensive firms in the index, including Unilever, British American Tobacco, National Grid, AstraZeneca, and BAE Systems. Each have their own individual risks, of course, but their revenues tend to be more insulated from macroeconomic turbulence.
Naturally, the index is heavily skewed towards its largest constituents. Were these to underperform, then the ETF could struggle to replicate its past performance.
However, over the long term, I’m bullish on some of these names, particularly HSBC, AstraZeneca, and Rolls-Royce. Moreover, most of these firms pay rising dividends, which adds to the investment case for the ETF.
As markets wobble, I think this FTSE 100 tracker is worth considering for a Stocks and Shares ISA or SIPP (or both).
