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The State Pension is the cornerstone of retirement for many UK citizens. Yet even after it’s hiked by 4.8% in April, it still only provides an income of £12,547.60 a year, or £241.30 a week.
That’s certainly better than nothing. But it’s not near enough to live, even for a moderate lifestyle, according to Pensions UK. For that, individuals need to have an income of at least £31,700 a year.
Luckily, by investing in a Self-Invested Personal Pension (SIPP), even a small investor starting from scratch at 40 with only £350 to spare each month can aim to earn an extra £25,000 each year – roughly double the State Pension. Here’s how.
The power of a SIPP
When it comes to building retirement wealth, a SIPP has a massive advantage over other tax-efficient accounts like an ISA. That advantage is called tax relief.
Whenever money is added to this account, any income tax that’s been paid is refunded. So for someone paying the basic rate, a £350 deposit is automatically topped up to £437.50.
Following the 4% withdrawal rule, to generate our target of £25,000 passive income, a SIPP portfolio needs to be worth around £625,000. And by investing that £437.50 each month at a 10% annualised return, a brand new SIPP could reach this threshold within just under 26 years – perfect timing for a 40-year-old aiming to retire around 65.
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.
Aiming for 10% returns
Sadly, relying solely on index funds may be insufficient to earn an average of 10% each year. The FTSE 100 has performed exceptionally in 2025 but, over the long run, its average return has sat closer to 8%. That may not seem like a big difference, but it adds five years to the journey towards £625k.
Luckily, stock picking offers a solution. Instead of tracking the market, investors can buy shares in specific businesses directly. And by making smart decisions, they can go on to earn market-beating returns even larger than 10%.
Take Halma (LSE:HLMA) as an example to consider. Over the last 25 years, including dividends, the safety and technology conglomerate has delivered an incredible 16.3% annualised return. And as such, anyone who’s been drip feeding £437.50 in a SIPP during that time now has a staggering £1.8m in the bank – enough to generate a passive annual income of £72,480 today.
So could Halma repeat this over the next 25 years? There’s certainly room for optimism.
Bull versus bear
The group’s optical photonics subsidiary, Avo Photonics, is experiencing extraordinary growth thanks to AI and data centre investment. And with its other businesses continuing to execute consistently, management has once again raised its growth and profit forecasts.
However, while photonics growth’s impressive, it comes paired with material customer concentration risk. If AI spending slows for just one hyperscaler, Halma’s growth in this sector will likely follow.
While that won’t compromise the business, it could open the door to considerable share price volatility. After all, the shares currently trade at a price-to-earnings ratio of 45, suggesting that investors are expecting flawless execution!
Nevertheless, with an impressive long-term track record, investors seeking to build retirement wealth may want to consider taking a closer look, especially if the share price stumbles. And it’s not the only quality UK stock on my radar right now.
