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Image source: Getty Images<\/p>\n
The State Pension is the cornerstone of retirement for many UK citizens. Yet even after it\u2019s hiked by 4.8% in April, it still only provides an income of \u00a312,547.60 a year, or \u00a3241.30 a week.<\/p>\n
That\u2019s certainly better than nothing. But it\u2019s 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 \u00a331,700 a year.<\/p>\n
Luckily, by investing in a Self-Invested Personal Pension (SIPP), even a small investor starting from scratch at 40 with only \u00a3350 to spare each month can aim to earn an extra \u00a325,000 each year \u2013 roughly double the State Pension. Here\u2019s how.<\/p>\n
The power of a SIPP<\/p>\n
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.<\/p>\n
Whenever money is added to this account, any income tax that\u2019s been paid is refunded. So for someone paying the basic rate, a \u00a3350 deposit is automatically topped up to \u00a3437.50.<\/p>\n
Following the 4% withdrawal rule, to generate our target of \u00a325,000 passive income, a SIPP portfolio needs to be worth around \u00a3625,000. And by investing that \u00a3437.50 each month at a 10% annualised return, a brand new SIPP could reach this threshold within just under 26 years \u2013 perfect timing for a 40-year-old aiming to retire around 65.<\/p>\n
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.<\/p>\n
Aiming for 10% returns<\/p>\n
Sadly, relying solely on index funds<\/a> 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 \u00a3625k.<\/p>\n