The full new State Pension is currently worth £241.30 a week, or £12,547.60 a year. But that figure is tipped to rise by 3.9% from April 2027, taking the annual payment to around £13,036 if the latest earnings figure is used for the Triple Lock.
That’s all well and good, but what about investors who want to match that level of passive income through their investments? I took a look at some different return profiles so you don’t have to.
What’s the magic number?
The basic calculation is simple: divide the annual income target by the assumed rate of return. I wanted to check the investment pot required under different scenarios.
I looked at both the FTSE 100 average dividend yield of 3.5%, as well as a popular Footsie stock in BT (LSE: BT.A).
What really stood out is how much the Footsie’s bumper one-year total return of 16.7% can drive down the numbers. Of course, that’s not a reasonable long-term average to bank on for future withdrawals.
Scenario
Assumed rate of return
Required portfolio
FTSE 100 dividend yield
3.5%
£372,457
BT dividend yield
4.2%
£314,120
FTSE 100 one-year total return
16.7%
£78,060
At a 3.5% yield, an investment of £372,457 would generate approximately £13,036 a year before tax and costs. This assumes income is from dividends, with the capital left invested.
With a higher 4.2% yield, £314,120 invested solely in BT (not a scenario I favour, of course) could potentially generate the same annual income if the dividend remained unchanged and the share price remained steady.
Applying the FTSE 100’s 16.7% total return over the past year to the income target produces a pot of just £78,060. That’s by no means a sustainable, long-term withdrawal rate but it shows just how good a year the UK large-cap index has had.
Is BT worth considering?
At 200.50p a share as I write on Friday (18 September), BT has a market capitalisation of around £20bn. It’s a sizeable player in the Footsie and a mainstay in many portfolios given its nice yield.
Notably, the company increased its FY26 dividend by 2% and continues to invest heavily in its full-fibre network.
Allison Kirkby, BT Group’s chief executive, said the company was making strong progress against its strategic priorities, with fibre expansion and cost management supporting its ambitions.
The momentum in, and impact of, our full fibre programme is such that we are now raising our build target by 20% to up to 5m UK premises in FY26, keeping us comfortably on track to reach 25m by the end of 2026, while maintaining our cash flow guidance.
Allison Kirkby, CEO