A Self-Invested Personal Pension (SIPP) is essentially a ‘do-it-yourself’ pension intended for investors who feel confident managing their own retirement funds without financial advice. Its focus on long-term investing aligns perfectly with my investment philosophy.
It’s an excellent choice for those who want access to a broad selection of funds. SIPPs often offer more options than a traditional personal pension. Additionally, SIPPs generally have lower fees and charges than other schemes.
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.
Should you invest £1,000 in British Land Plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if British Land Plc made the list?
Unfortunately, many people aren’t contributing enough to their pension these days. According to government figures, the average pension is around £37,000 at retirement. Following the recommended 4% drawdown would only equate to £1,480 a year.
But even at age 50, it’s not too late to turn that around. That’s where a SIPP comes in. If I were in my 50s with a minimal pension, I’d consider the following plan.
Cutting costs and compounding returns
The sad truth is, no pension will enjoy meaningful growth without significant contributions. The more the better, but I’d recommended at least £500 a month, if possible. Yes, this may mean cutting down on some luxuries but when starting late, it’s a necessary evil.
The more contributed, the more savings accrued from the tax benefits. For example, on the standard 20% basic tax rate, £500 equates to £620. That’s £7,440 invested a year, or £148,800 after 20 years.
Investing £7,440 a year into a portfolio of shares could result in exponential growth due to the compounding returns. The FTSE 100 returns on average 8.6% a year (with dividends reinvested). With that average, the SIPP could grow to £404,671 in 20 years.
At the standard 4% drawdown, that would provide £16,186 a year.
The FTSE 100 average is a good benchmark but with an actively managed portfolio, many investors achieve higher returns. Several well-established companies consistently outperform the index.
A few that come to mind include AstraZeneca, Diageo, RELX and Reckitt Benckiser. But my favourite’s Unilever (LSE: ULVR), and here’s why I’d consider it.
Defensive and diverse
The consumer goods giant’s known for its stable growth and resilience in various market conditions. Combined with a diverse product portfolio and strong brand loyalty, it’s a highly defensive stock. Some of its more famous brands include Dove, Lipton, Ben & Jerry’s, and Hellmann’s.
The share price tends to be quite stable, delivering annualised returns of 6.58% over the past 30 years. Stability’s a key factor to consider when thinking about retirement. I want to relax – not stress about wildly fluctuating markets!
That said, Unilever’s products depend on commodities like palm oil, dairy, and packaging materials, which can be volatile. Rising input costs can squeeze profit margins unless they’re passed on to consumers. It’s also exposed to currency fluctuations, especially in volatile regions like Brazil, India, and parts of Africa.
This can impact reported earnings, leading to price dips.
But most importantly, Unilever’s well-regarded for its consistent and increasing dividend payments. It doesn’t have the highest yield, at 3%, but it’s very reliable. It’s also trading at fair value with a slightly below-average price-to-earnings (P/E) ratio of 21.3. Like the share price, this ratio maintains relative stability.
