How much do you need in a SIPP to target a pension income of £999 a month?

A SIPP can be a great way to build a pot of money for retirement. A key reason is that the government effectively tops up pension contributions through tax relief.

For a basic rate 20% taxpayer, every £100 invested only costs £80, falling to £60 for a higher rate 40% taxpayer. On top of that, dividends and capital gains grow tax-free. Currently, a quarter of the pension pot can be withdrawn free of income tax from age 55 (rising to 57 from 2028).

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.

Building a passive retirement income

So how much would an investor need to save to grab a passive income of £999 a month? That’s nearly £12,000 a year, and while it isn’t enough to retire in luxury, it could help to build a solid foundation for a comfortable lifestyle.

Using the classic 4% safe withdrawal rule, a second income of £999 a month would require a pot of around £300,000. A saver could reach that target in 25 years by putting around £370 a month into their SIPP, assuming a 7% annual growth rate. With 40% tax relief, the monthly outlay falls to £222.

Over decades, the combination of tax relief and compound growth can make hitting £300,000 a realistic prospect for disciplined investors. Especially those who increase their contributions over time, and throw in the odd lump sum when they have one to hand.

I’ve built my own SIPP around a mix of FTSE 100 stocks, balancing potential share price growth with dividend income to create a passive income stream.

Housebuilding stocks look cheap

One company I’m keeping an eye on is FTSE 250-listed housebuilder Bellway (LSE: BWY). Like many stocks in this sector, it has struggled lately.

The Bellway share price is down around 20% over the past year, but it’s now showing signs of recovery, rising more than 10% in the last month.

Bellway offers a modest dividend yield of 2.15%, lower than peers like FTSE 100 housebuilder Taylor Wimpey, which yields around 9%, but it could still play a role in a diversified SIPP.

On 12 August, the Bellway board reported strong home completions and an average selling price ahead of guidance. Net cash turned positive, giving it flexibility to expand its landbank.

Like every housebuilder, it faces problems, as many potential buyers struggle with affordability, due to high house prices and the cost-of-living crisis. A few interest rate cuts could quickly change that, by reducing mortgage costs. But with inflation still well above the Bank of England target, we may have to be patient.

Bellway shares look decent value, with a price-to-earnings ratio of just over 18. Analysts are optimistic. Consensus forecasts a one-year share price of 3,162p. If correct, that’s a potential 25% jump from today’s 2,512p. Forecasts are little more than educated guesses, but I still think the stock is well worth considering for patient long-term investors.

Housebuilders like Bellway offer potential capital growth alongside dividends, but they’re cyclical and sensitive to economic swings. Exposure to a mix of other stocks and sectors can smooth returns while contributing to long-term wealth.

With discipline and patience, £999 a month from a SIPP isn’t a pipe dream. It’s achievable, but it won’t happen overnight. The sooner investors crack on, the better.