When it comes to retirement saving, time is one of the most powerful tools available. Yet many investors delay opening a Self-Invested Personal Pension (SIPP), believing it’s too late to make a meaningful difference.
The truth? While starting early is ideal, it’s never too late to benefit from a SIPP’s tax advantages and investment flexibility.
A SIPP is a type of personal pension that allows investors to choose where their money goes — from individual shares and funds to investment trusts and ETFs.
Like other pensions, contributions benefit from generous tax relief. For most people, this means that for every £80 paid in, the government adds £20 — effectively an instant 25% boost before any market growth.
Higher-rate taxpayers can claim back even more via their self-assessment, making SIPPs one of the most tax-efficient investment vehicles in the UK.
Running the maths
I’ve used this graph before, but it’s really useful to understand how an investor could build a £500,000 portfolio. As we can see, there are three main variables: years to retirement, annualised returns, and monthly contributions.
The easiest ones to influence are monthly contributions and years to retire. However, annualised returns reflects how good we are as investors. More conservative or novice investors may be happy with 5% per year.
More experienced, risk-tolerant investors, however, will be looking for double-digit returns. Some look for long-term returns in excess of 20% per year — myself included.
| YEARS TO RETIRE | ANNUALISED RETURN (%) | MONTHLY CONTRIBUTION (£) |
|---|---|---|
| 10 | 5 | 3,200 |
| 10 | 7 | 2,900 |
| 10 | 10 | 2,450 |
| 20 | 5 | 1,225 |
| 20 | 7 | 950 |
| 20 | 10 | 660 |
| 30 | 5 | 600 |
| 30 | 7 | 410 |
| 30 | 10 | 220 |
As we can see, the sooner we start, the easier it becomes to hit target. It’s all about compounding.
Where to invest?
The big difference between a SIPP and a workplace pension or state pension is that you have to choose where to invest yourself. This can feel daunting.
This is why many novice investors will start by investing in index-tracking funds or things like investment trusts.
One of my favourite investment trusts — and one of only two in my portfolio — is Scottish Mortgage Investment Trust (LSE:SMT), and it’s definitely worth considering as a starting point for a SIPP.
Scottish Mortgage has a long track record of backing innovative, fast-growing companies across sectors like technology, healthcare, and clean energy.
Its managers take a truly global, long-term approach, investing in both listed and private firms such as Nvidia, SpaceX, and MercadoLibre. That mix offers huge potential for compounding growth within a tax-efficient SIPP wrapper.
However, it’s not without risk. The trust’s focus on disruptive businesses means performance can be volatile, especially during periods when growth stocks fall out of favour.
The trust also practices gearing — borrowing to invest — which can magnify losses as well as gains.
However, for investors with a long time horizon and appetite for short-term fluctuations, Scottish Mortgage offers exposure to some of the world’s most dynamic companies.
