No pension at 50? Here’s my SIPP investment plan to target £16k a year in passive income!

A Self-Invested Personal Pension (SIPP) is a ‘do-it-yourself’ pension aimed at investors who feel confident managing their retirement funds without financial advice. Its focus on long-term investments fits well with my investment philosophy.

It is an excellent choice for those who want access to a wide selection of funds. SIPPs often offer more options than a personal pension. Additionally, SIPPs often have lower fees and charges than other schemes.

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.

Unfortunately, many people are not putting enough money into their pension these days. According to government figures, the average pension is around £37,000 when you retire. Following the recommended 4% down would equate to just £1,480 a year.

But even at 50, it’s not too late to change that. This is where a SIPP comes in. If I were 50 and receiving a small pension, I would consider the following plan.

Cost reduction and compounded returns

The sad truth is, no pension will enjoy meaningful growth without significant contributions. The best, but I would recommend at least £500 a month, if possible. Yes, this may mean cutting back on some luxuries but if you’re starting late, it’s a necessary evil.

The more is donated, the more savings are collected in tax benefits. For example, at a basic rate of tax of 20%, £500 equals £620. That’s £7,440 invested per year, or £148,800 after 20 years.

Investing £7,440 a year in a share portfolio can lead to significant growth through compound returns. I FTSE 100 returns an average of 8.6% per year (with dividends reinvested). At that rate, the SIPP could grow to £404,671 over 20 years.

At a standard rate of 4%, that would provide £16,186 a year.

The FTSE 100 index is a good benchmark but with an actively managed portfolio, many investors get higher returns. Many well-established companies consistently outperform the index.

A few that come to mind include AstraZeneca, Diageo, RELX again Reckitt Benckiser. But it’s my favorite Unilever (LSE: ULVR), and that’s why I would consider it.

Protective and versatile

The consumer goods giant is known for its steady growth and resilience in different market conditions. Combined with a diversified product portfolio and strong brand loyalty, it is a very defensive stock. Some of its most popular products include A dove, Lipton, This is Ben & Jerry’sagain This is Hellmann’s place.

The share price tends to be stable, delivering an annual return of 6.58% over the past 30 years. Stability is an important factor to consider when thinking about retirement. I want to relax – not stress about the fluctuating markets!

That said, Unilever’s products rely on things like palm oil, milk, and packaging materials, which can change. Rising input costs can squeeze profit margins unless they are passed on to consumers. It is also vulnerable to currency fluctuations, especially in volatile regions such as Brazil, India, and parts of Africa.

This can have an impact on reported wages, leading to lower prices.

But most importantly, Unilever is well regarded for its consistent and growing dividend payouts. It does not have the highest yield, at 3%, but it is very reliable. It also trades at a fair value at a slightly lower price-to-earnings (P/E) ratio of 21.3. Like the share price, this ratio maintains relative stability.