Here’s how to use a SIPP to aim for a £5.4m retirement
Investing through a Self-Invested Personal Pension (SIPP) is one of the best ways to help secure a more comfortable retirement. And those who are able to start putting aside money early on can end up with an enormous nest egg.
In fact, with just £500 a month, a 30-year-old starting from scratch can build a £5.4m retirement portfolio. Here’s how.
Looking at the numbers
Building a multi-million-pound fortune may seem only possible for the most affluent earners in the UK. Yet, when leveraging the compounding power of the stock market and the tax-relief benefits of a SIPP, all it actually takes is sparing £500 each month.
For someone paying the Basic rate of income tax, every £500 deposit into this pension account is automatically topped up to £625 by the government. And if a young investor were to continually drip feed this capital into a low-cost index fund for 40 years at an 8% annualised rate, their SIPP would steadily grow to £2.2m when starting from scratch.
That’s not bad, but what about earning over £5m?
The easy solution would be to just invest more money each month. But that might prove challenging for some, especially with the continually rising cost of living in the UK. Fortunately, there’s another solution â stock picking.
By selectively investing in only the best businesses, a portfolio can go on to earn more than 8% each year. And even if that equates to just an extra 3%, that’s all it takes to transform a £2.2m potential SIPP into a £5.4m one.
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 bigger returns
Beating the market’s far easier said than done. But by identifying which companies have the skill and ability to outmanoeuvre their rivals, investors can go on to earn some pretty impressive gains. A perfect example of this in action is the safety and sensors business, Halma (LSE:HLMA).
Since its IPO in 1991, Halma shares have gone on to generate a 13,132% total return. That’s the equivalent to an average of 14.5% a year â enough to reward anyone who’s been drip feeding £625 each month with a £9.2m SIPP!
Still worth considering?
This tremendous success stems from a combination of structural advantages. The firm’s products never fall out of fashion even during recessions, courtesy of continuous regulation in its customers’ end markets.
For example, new buildings must be fitted with fire alarms, medical devices must comply with clinical standards, and water infrastructure must be continually monitored.
Even in 2026, this continues to be the case. And by leveraging its dominant status within niche but critical markets, the company has delivered ever-expanding profit margins, simultaneously fuelling a self-funding, bolt-on acquisition engine.
Of course, acquisitive growth comes with significant execution risk if Halma starts buying underperformers. And while the firm does generate some robust organic growth, this has started falling behind some of the wider industry benchmarks â a potential problem for a stock that trades at a premium valuation.
Despite this, Halma’s £15.6bn market-cap still leaves plenty of room for long-term compounding. And while it may struggle to keep up with its historical track record, SIPP investors could be wise to give it a closer look.
The post Here’s how to use a SIPP to aim for a £5.4m retirement appeared first on The Motley Fool UK.
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma Plc. 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.
