30 years of SIPPs: How savers could have turned £500 a month into a £2.5 million pension (even with the Coronavirus sell-off)

•    This month marks the 30th anniversary of the first Self Invested Personal Pension (SIPP) being launched in the UK
•    Someone who started investing £1,200 a year into the FTSE All share via a SIPP in 1990 could have a fund worth £155,249 today, while someone who started investing £6,000 a year – equivalent to £500 a month - could have £776,246
•    If £6,000 a year had been invested in the best performing fund – Janus Henderson China Opportunities - over that period it would be worth almost £2.5 million today
•    Figures demonstrate the value of long-term saving and investing even as Covid-19 creates huge turmoil for economies around the world

Tom Selby, senior analyst at AJ Bell, comments: 

“While the impact the Covid-19 pandemic is having on society is undoubtedly without precedent, double-digit falls in the value of blue chip indices like the FTSE 100 over the short-term are nothing new. 
“In fact, since SIPPs were first created in 1990 we have seen three such periods – the Dot Com crash in 2001, the Great Financial crash in 2008 and now the 2020 Coronavirus crash. 
“After the first two economic crises share prices recovered and then some, so while retirement investors may be feeling the pain right now, history suggests stockmarkets should eventually bounce back. 
“Indeed, even those wearing heavy losses as a result of the Coronavirus downturn could still have reaped the rewards of thinking long-term.

Turning £500 a month into a £2.5 million pension

“A basic-rate taxpayer who started with a personal contribution of £1,200 a year to their SIPP from March 1990, increasing by 2% a year and invested it in the FTSE All share could have a fund worth £155,249 today, while a £6,000 starting annual contribution – equivalent to £500 a month – could be worth £776,246.
“Meanwhile, if a £1,200 annual SIPP contribution had been invested in the best performing fund over the last 30 years – the Janus Henderson China Opportunities fund – it could have generated a pot worth over three-quarters of a million pounds, while a £6,000 annual investment could now be worth almost £2.5 million.
“On the other side of the coin, someone contributed £1,200 a year into a SIPP and invested in the worst performing fund – Schroder ISF Global Energy – over the last 30 years could have a fund worth just £52,584 today, while a £6,000 annual investment could be worth £262,921.
“Although in reality most investors would hold a diversified portfolio to ensure they aren’t exposed to one particular region or industry, this just goes to show the power of compound growth coupled with generous pension tax incentives over the long-term. In the £2.5 million example, basic-rate tax relief alone and the investment growth generated on that money would have contributed over £580,000 to the total. 
“Clearly these are extremely challenging times for investors, and thinking long-term might be impossible for those facing job insecurity and struggling to make ends meet. But for those in a position to do so, saving and investing via a SIPP remains a shrewd move.”

Table shows fund value today based on opening the SIPP in March 1990

Assumptions:

•    Basic rate taxpayer (Higher and additional rate tax payers would have been able to reclaim additional tax relief via their tax return. Data available on request.)
•    Contributions increase by 2% each year 
•    Tax relief is applied in the same way each year based on the basic rate of income tax that year
•    1% per annum in SIPP charges 

Annualised returns:

Best performing fund - Janus Henderson China Opportunities    13.05%
FTSE All-Share                            6.77%
Worst performing fund - Schroder ISF Global Energy        -0.21%

Source: FE

Best performing funds over 30 years:

Worst performing funds over 30 years: