Although a Stocks and Shares ISA isn’t a pension scheme, it can help provide an income later in life. And one of the attractions of this particular investment product is that dividends can be earned tax-free.
For those without an occupational pension – it’s estimated that around a quarter of private sector employees aren’t members of a workplace scheme — this could be one way of helping ease the financial pressure of retirement.
Historically, an advantage of working for the government has been the attractive pension on offer. Indeed, figures reveal that the typical Civil Service retiree is able to give up work three years earlier than their private sector counterpart. At this point, they will receive £9,874 a year.
But how much would be needed in an ISA to beat this figure? Let’s see.
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How do the numbers stack up?
The table below shows how a monthly investment of £200 would grow over 25 years depending on the annual return achieved.
| Annual return | ISA value (£) |
|---|---|
| 5% | 117,624 |
| 6% | 135,916 |
| 7% | 157,493 |
| 8% | 182,967 |
As an example, a portfolio of dividend shares paying 6.5% a year, would produce an annual income of £10,237 on an ISA worth £157,493. This is more than the average Civil Service pension.
But is it really possible to find income stocks offering a return like this?
Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.
John D Rockefeller
Is this a realistic ambition?
The yield on the FTSE 100 is currently (2 May) 3.1%. Delve deeper, and it’s possible to find 40 on the index paying more than this. In fact, seven are presently offering a return of 6% or more.
One of these is Standard Life (LSE:SDLF). Until recently, it was known as Phoenix Group. Now, the company carries the name of its most famous brand. And it’s one of many offering Stocks and Shares ISAs.
Based on amounts declared over the past 12 months, the retirement specialist is yielding 7.2%. With this return, a £157,493 ISA would produce an annual income of £11,339.
Of course, dividends can never be guaranteed. They’re a distribution of profit and can therefore fluctuate in line with earnings.
Specifically, Standard Life’s payout could come under threat if its huge investment portfolio suffered losses due to global market uncertainty. It could also fall victim to increased competition in an industry that’s seeing a number of challenger brands looking to take market share.
However, if history is anything to go by, Standard Life’s one of the most reliable dividend payers around.
Its payout’s been increased every year since 2016, following three years of it being maintained at 40.8p. For 2025, it paid 55.4p, 32% higher than 10 years earlier.
Right place, right time
Personally, I think it’s well placed to continue growing. The value of the UK retirement savings and income market is expected to increase from an estimated £3.6trn in 2024, to £6.1trn by 2034.
Standard Life also has a strong balance sheet, comfortably meeting all regulatory requirements.
Positively, investors appear to have bought into the investment case. Since recording a five-year low in October 2023, the group’s share price has risen over 70%.
Alongside its huge dividend yield, this makes me believe it’s a UK share to consider.
