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Leveraging the power of a Self-Invested Personal Pension (SIPP) to build long-term wealth can drastically improve an investor’s retirement income and lifestyle. Using the tax relief benefits not only supercharges the compounding process but also eventually turns small monthly deposits into larger lump sums.
This enables investors to put considerably more money to work versus a general investment account. And as such, it becomes possible to unlock a £5,000 monthly passive income significantly faster. Here’s how.
The journey to £5k
The earlier the investment journey begins, the better. However, it’s never too late for an investor to start improving their financial position. And even someone at the age of 40 with no savings can set themselves up for a comfortable retirement.
The average retirement age in the UK is 67. So anyone who’s just turned 40 now has 27 years to prepare. Just how much money is needed to generate a £5,000 monthly, or £60,000 annual retirement income? Following the 4% withdrawal rule, that works out to a required portfolio size of £1.5m.
That’s certainly a challenging goal, but it’s not as impossible as many might think. After receiving 20% tax relief in a SIPP, a £750 monthly deposit instantly grows into £937.50 of investable capital. And investing this money at a 10% annualised growth rate for 27 years translates into a £1.54m portfolio, slightly ahead of the target.
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.
Earning 10%+ returns
Historically, the British stock market has generated an average annual return of 8% a year. Therefore, while relying on index funds is a perfectly sound long-term strategy, it may prove insufficient if the goal is to reach £1.5m in under three decades.
Instead, adopting a stock-picking strategy could yield far better results. This is a far more demanding approach to building wealth that requires emotional discipline and effort. Yet it’s also how investors can discover tremendous winners like London Stock Exchange Group (LSE:LSEG).
Over the last 20 years, the company powering the UK stock market has delivered phenomenal gains of 1,861%. That’s the equivalent of 16% a year. And anyone who’s been investing £937.50 each month at this rate since 2005 is now sitting pretty on £1.62m.
Still worth considering?
This business has evolved into a £50bn enterprise. As such, its days of delivering 16 annualised returns are most likely behind it. But that doesn’t mean the stock isn’t capable of still being a market outperformer.
Even in 2025, London Stock Exchange Group continues to post impressive financials with strong organic growth and recurring revenue streams. Management’s investments in data analytics and artificial intelligence (AI) have diversified the business to be less cyclically sensitive, supporting more predictable earnings.
Of course, no investment is ever risk-free. British investors are notoriously conservative. So much so that many UK companies are choosing to list their stocks abroad, while other existing London-listed businesses are also flirting with the idea of moving.
Don’t forget, the group makes a good chunk of revenue from IPOs and annual fees. As such, the downward trend in UK listings is a headwind that’s hampering growth. And if this narrative continues, investor sentiment surrounding this stock could suffer.
Nevertheless, given the highly cash-generative nature of this enterprise, it remains a stock that I think is worth further investigation as a potential SIPP addition in 2025.
