How to target a £1,183 monthly passive income in a SIPP for life!

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The SIPP account can supercharge an investor’s chances of retiring comfortably. It carries three enormous advantages.

Capital gains and dividends are protected from taxes, maximising investment returns and accelerating the compounding process. What’s more, holders of these pension products get tax relief, something that Stocks and Shares ISA holders don’t benefit from.

The third benefit? These products are designed to harness the phenomenal long-term power of the stock market. With returns that typically bash those of other major asset classes, this focus on share investing can set investors up for a luxurious retirement.

Want to know how you could earn a £1,183 monthly passive income in retirement? Let me show you.

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.

Crunching the numbers

As I say, tax relief is a SIPP perk that can turbocharge long-term wealth creation. This sits at a healthy 20% for basic-rate taxpayers, moving to 40% for higher-rate individuals. At the additional-rate tax band, it increases to 45%.

So how does this work in real life? Okay, let’s say you’re in the middle bracket tax bracket and can invest £288 monthly. That’s what the average Brit has left in savings at the end of each month, according to NatWest.

With an extra 40% in tax relief, the actual amount going into your SIPP each year averages out at £5,760. It’s better than the £3,456 you’d be putting to work solely by using your own funds.

Now comes the fun part. We’ll assume you can achieve 9% average annual return over 30 years. That’s bang in the middle of the 8% to 10% return that the stock market has delivered so far. At this rate, you’d have a nest egg of £878,757 for retirement.

If this was then invested in 7%-yielding dividend shares, how much weekly passive income would you have? You’ve guessed it — £1,183, working out at just over £61,500 a year.

So what’s the catch?

There is a downside to this plan: dividends are never, ever guaranteed. But there’s an easy way investors can get manage this problem. Holding a large selection of income-paying shares, trusts, and funds can provide a reliable income even if one or two companies deliver dividend stocks.

I personally hold 20-25 stocks in my portfolio at any one time. One of these is HSBC (LSE:HSBA), which has a strong dividend growth record. Since 2020, this FTSE 100 stock’s raised payouts at an average yearly rate of 35%. It’s also paid special dividends in that time.

I’m not expecting dividends to keep rising at that rate. Cuts during the 2020 pandemic mean recent growth is boosted by a low starting point. But I’m confident they can keep rising at pace, driven by rapid earnings growth in its Asian emerging markets. The bank also has a cash-rich balance sheet to support dividends — its CET1 capital ratio is 14.9%, still ahead of its 14% to 14.5% target range.

The dividend yield on HSBC shares is a solid 4.2%. Profits may come under pressure during economic downturns, when loan impairments can rise and revenues lag. But the bank’s enormous scale and focus on high-growth regions could still mean strong returns for SIPP investors, including more impressive dividends.

The post How to target a £1,183 monthly passive income in a SIPP for life! appeared first on The Motley Fool UK.

More reading

• How did HSBC pay more passive income via dividends in 2025 than any other British company?
• £20,000 in savings? Here’s how you could use that to earn a monthly second income
• How big would an ISA need to be to target £38,584 a year in passive income?
• £15,240 saved in a Cash ISA in 2016 is now worth…
• How much would an ISA need to double the State Pension and target £25,094 a year?

HSBC Holdings is an advertising partner of Motley Fool Money. Royston Wild has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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