Since early 2000, a Self-Invested Personal Pension Plan (SIPP) has offered savers the chance to take greater control of their retirement planning. And with attractive tax advantages and flexibility in the types of investments that can be held, I reckon it’s a great way for DIY investors to aim for a more financially secure old age.
However, we are regularly reminded that we are not saving enough. Indeed, it’s estimated that around a quarter of 40-year-olds don’t have a private pension. But I still think there’s plenty of time left. Someone in their forties today will be able to access the State Pension when they are 66. But even with a full record of National Insurance contributions, it’s only likely to provide for a basic standard of living. However, it still leaves 26 years for someone to significantly boost their retirement income by paying into a SIPP.
Here are a few examples.
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.
Crunching the numbers
The table below shows the potential value of a SIPP after 26 years, depending on the amount invested and the growth rate achieved.
| Annual return/monthly investment | £100 | £200 | £300 | £400 | £500 |
|---|---|---|---|---|---|
| 4% | £53,174 | £106,348 | £159,522 | £212,696 | £265,870 |
| 5% | £61,336 | £122,672 | £184,008 | £245,345 | £306,681 |
| 6% | £70,988 | £141,975 | £212,963 | £283,951 | £354,938 |
| 7% | £82,412 | £164,824 | £247,235 | £329,647 | £412,058 |
For context, the FTSE 100 has delivered an average annual return of 5.6% (excluding dividends) since March 2000, when SIPP’s were launched.
By way of example, a pension pot of £247,235 earning dividends of 5%, could provide an annual income of £12,362. This would be a nice addition to the full State Pension which, at the moment (2026-2027 tax year), pays £12,458.
What does the past tell us?
History suggests that by taking a long-term view and following a successful stock-picking strategy, it’s possible to enjoy a better return than the 5.6% quoted above.
For example, since the launch of SIPPs, British American Tobacco, Shell, and AstraZeneca have seen their share prices rise by an annual average of 10%, 7.7%, and 6.1% respectively. Of course, there are no guarantees. There are examples of FTSE 100 stocks that have fallen in value over this period. However, it does illustrate how choosing the right stocks can deliver huge long-term gains.
What about the next 26 years? Here’s a stock that I think investors could consider tucking away in a SIPP.
Long-term growth potential
As well as seeking to develop factory-built mini nuclear power stations, Rolls-Royce Holdings (LSE:RR.) wants to return to making engines for narrowbody aircraft. If all goes to plan, the 2030s (and beyond) could see the aerospace and engineering group operating on a different scale.
Indeed, its boss reckons the anticipated huge growth in energy-hungry data centres could see the company become the UK’s most valuable. The small modular reactor market is forecast to grow to $330bn by 2044.
There is no private company in the world with the nuclear capability we have
Tufan Erginbilgiç, CEO of Rolls-Royce
Of course, there are no guarantees this new technology will work. Also, the group’s shares can hardly be described as cheap.
But Rolls-Royce’s defence division should benefit from increased global uncertainty. And its existing engines for larger aircraft are the industry’s preferred choice.
Obviously, it’s better to start saving for retirement as early as possible but, even for latecomers, there’s no need to give up hope. By carefully selecting some high-quality UK shares to hold in a SIPP, I think it’s possible to enjoy a more financially secure old age.
