Given that the retirement age keeps moving up and up, and the amount pensioners receive barely moves, it is not hard to see why so many savers and investors wouldn’t want to rely on the State Pension to see them through their old age. As it only amounts to around £164 per week, it could prove to be inadequate for most retirees, boosting the need to invest in a self-invested personal pension (SIPP), or other savings device as early as possible. A SIPP is a type of pension that can be independently managed so giving you greater control over investments and costs and which is also tax-efficient. Making use of a SIPP allows a pot of money to built up for retirement and for those who invest in the stock market for the long term, the amount could end up being significant.
The supermarket giant
Tesco (LSE: TSCO) is one share that I think offers long-term value due to its large market share (around 28%) of the £200bn-a-year UK groceries industry. Although its share has fallen as a result of the rise of discounter chains such as Aldi and Lidl, it does still give Tesco a lot of economies of scale and clout. Added to this is the fact that nearly a year ago, it completed the acquisition of wholesaler Booker, giving Tesco new revenue streams from catering and wholesale supply.
Less than a year in and the tie-up seems to be yielding rewards as Tesco did well over Christmas with sales that exceeded the expectations of analysts. The 1.5% rise over the five weeks ending 5 January followed on from a third quarter with growth of 0.5%. Booker was the best performing unit and Tesco UK also did well, although internationally the firm struggled.
This growth means that broker forecasts put the shares on a price/earnings ratio of 13.1 for 2019/20, with a 3.4% dividend yield. To me, this makes Tesco a good long-term investment and therefore a good fit for a SIPP.
Catering for all
Another share to consider for a SIPP would be catering company Compass (LSE: CPG). It is a steady business which can achieve high returns on capital employed – often in excess of 20%, meaning above all that it is efficient. A broad customer base that ranges from Aston Villa in the UK to De Beers in South Africa and Verizon in the US means revenues should prove resilient and the company is not reliant on any one customer, region or sector for too much of its revenues/profit.
The full-year results in November showed underlying revenues rising 5.5% to £23.2bn, driven by North America, and operating profit also rose 7.1%. What this shows is that Compass, despite being a low-margin business, can continue to grow and provide returns for shareholders. It isn’t a business an investor needs to keep a particularly close eye on because it has a below market average beta of 0.88 meaning it is less volatile than average and ideal to tuck away in a SIPP. Investors get a yield of over 2% and it is growing (up by 42% since 2014).
Nobody wants to retire poor and rely on the State Pension. By using a SIPP and investing in sustainable, profitable companies over a long period of time, you could build up a nest egg which could make those years after working far more enjoyable.
Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.