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Interested in setting up a SIPP and building a bigger pot of wealth for retirement? Or maybe you just started, and want to up your game? That’s a good idea, in my opinion. That’s exactly what I do.
Whether the investor is 30, 40, 50, or older, a Self-Invested Personal Pension is a smart way to build a pot of income when they stop working. It matches well with the Dividends and Dividends ISA, because the tax break comes first, in the case of tax relief on contributions. With an ISA, they come last, as a tax-free refund.
Amazing pension tax breaks up front
Each £100 into a SIPP costs a basic taxpayer only £80 after tax relief, falling to just £60 for a higher rate taxpayer. Withdrawals in retirement are taxable, but 25% can be withdrawn tax-free.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Today, the new State Pension pays a whopping £12,547.60 a year. So what would a SIPP investor need to double that, and generate a second income of £25,095.20?
Let’s assume they invest in broadcasting FTSE 100 again FTSE 250 shares pay huge dividends, and get a 5% yield on their SIPP. In that case, they would need £501,904. If they took 7% of their portfolio as income instead, which would include access to capital, they would get the same income of £358,500.
Building such wealth takes time, but the tax relief makes it easy. Either way, there’s no time to lose.
Today looks like a very bad time to buy FTSE 100 shares, the market has returned to volatility in the Middle East. Top stocks are now trading at much lower valuations.
I think NatWest shares look well-valued
NatWest (LSE: NWG) shares have fallen more than 14% in the past month. Despite that slide, they are up 165% over the past five years. That would turn a £10,000 investment into £26,500. Or comfortably over £30,000 in reinvested dividends.
Like all the big banks, NatWest has been making huge profits thanks to high interest rates, which have pushed up margins between what it pays out to savers and charges to borrowers. By 2025, pre-tax operating profit jumps by 24.4% to £7.7bn. That number of stars was reported on 13 February. Two weeks later, the war in Iran began. NatWest has pulled back but now looks incredibly valuable, with a price-to-earnings ratio of just 8.85. It’s hard to believe that such a profitable business can offer so much value. Especially since it offers a high trailing yield of 5.65%. What’s going on here?
No stock is without risk. It is a UK based bank, and our economy is not in the best of health. That may reach the need for loans and further bad loans. Still, I think NatWest looks like a compelling opportunity to consider.
If the Iran conflict continues, the shares could go even lower but frankly, I think they look overvalued today. The only thing holding me back is that my SIPP already has a large position in a rival FTSE 100 bank. Lloydswhich has a similar focus in the UK. That’s not a problem, because I see a lot of bad deals today.
