It’s now two weeks since investors were allotted their 2026/27 Stocks and Shares ISA contribution limit on 6 April. Which means it’s time to crack on and start planning how to invest up to £20k. The ISA is a brilliant way to build a passive income stream for retirement, as all dividends and growth are entirely free of tax. So what’s holding people back?

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.

Many feel safer by putting money into a Cash ISA. That’s understandable, given current stock market volatility. But when it comes to long-term savings, it can backfire. Over the last decade, the ’average’ Stocks and Shares ISA returned 9.5% a year (although depending on the stocks bought, the true figure for each investor could vary a lot). Regardless, that’s against just 4% from Cash ISAs, according to research from Investing Insiders.

FTSE 100 dividend dream

If someone had contributed up to the full limit each year for a decade, they’d have £340,770 from shares but just £249,727 from cash. The difference widens over time. If they didn’t invest a single penny more, but left their money to grow for another 10 years, the Stocks and Shares ISA could hold £844,505, while the Cash ISA would be worth £504,422.

Obviously, it’s better to put money in a Cash ISA than do nothing, but equities are the clear winner for long-term funds. Some cash is vital though, for short-term spending and flexibility. So how much do investors need in their ISA to generate that devilishly tempting £666 annual weekly income target? 

It partly depends on how much of their pot they withdraw each year. If they want to leave their capital untouched, they should probably limit withdrawals to 4% a year. In that case they’d need a hefty £865,800 to generate that weekly income, which adds up to £34,632 a year. If they upped their withdrawals to 7% a year, which might involve dipping into the capital too, they could generate the same income from £494,743. These are daunting sums, but obviously I’ve set an ambitious income target. A much smaller pension pot could still transform retirement.

Standard Life has a huge yield

High-yielding FTSE 100 dividend shares like insurer Standard Life (LSE: STAN) are a brilliant way of generating a second income in retirement. Recently renamed from Phoenix Group, it now offers the second highest yield on the blue-chip index at 7.27%.

Generous yields like this can be difficult to maintain, as the company needs to earn lots of cash to fund its largesse. Standard Life boasts a strong track record, having increased shareholder payouts every year for the last decade. They’ve increased at an average rate of 3.18% a year. That shows the business is on top of things, and helps protects the income from inflation. The Standard Life share price has done well lately. It’s up 30% in the last year, and 60% over two. As ever with equities, there are no guarantees.

Obviously, current stock market volatility, as Standard Life would be swept up in a wider crash. Dividends aren’t guaranteed, and can be cut in difficult times. Standard Life operates in a competitive market, and has to keep finding new lines of business to keep the cash flowing.

Yet I think this income stock is well worth considering. It could help fund a diabolically comfortable retirement, as part of a balanced portfolio of a dozen FTSE 100 stocks or so.