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Mar 04

How to open a Junior SiPP for your Junior

Did you know that your baby can have its own pension? You can open a Junior SiPP (Self-invested Personal Pension) for your child at any age until they’re 18 (if they are 16 or over when you open it for them then they will need to sign for it).

Junior SiPPs are not talked about as much as Junior ISAs but they should be. They enjoy the advantages of adult pensions, particularly the tax added in at the start which makes it grow immediately. It’s also a handy way to get them started in investing for their future.

It’s not for everyone but there are some really good reasons for you to consider it. Here’s how to set one up and why you should consider a Junior SiPP for your little one.

 

What’s so great about Junior SiPPs?

Mother and young daughter saving money in piggy bank

There are a few advantages to setting up a Junior SiPP (JSiPP) for your child or grandchild

  • You can put in up to £2,880 per year into a Junior SiPP and the government adds in the tax you would have paid on that bringing it up to £3,600 (if you can contribute the full £2,880 per year). If you can’t afford the full amount that’s no problem, just put what you can in and you still get the tax added in that you would have paid on that amount.
  • Starting your child’s pension journey early means they have even longer to benefit from compound returns which means that even if you can only put in £15 a month, say, over time that money will grow and grow to become something quite impressive by the time the child gets to retirement age.
  • According to research by Hargreaves Lansdown, someone contributing £300 per month to a SiPP from birth to 18 would have amassed £100,425.95. Even if no more money were put into the SiPP after that it would still benefit from investment returns and could be worth as much as £861,835.53 at age 65.
  • Someone contributing £100 per month would have accrued a pension pot of £33,475.32 for a young person by the time they hit 18. Again, if if they didn’t make any further contributions the pot could be worth £280,530.15 at age 65. At age 18 a junior SiPP becomes an ordinary SiPP and the young person can take control of making contributions for their retirement if they want to. If they don’t then the money just sits in the pot until retirement.

Estimated pot value at age 18

Monthly contribution (including tax relief) Value at 18

£100

£33,475.32

£200

£66,950.64

£300

£100,425.95

 

Estimated pension value at age 65 if regular contributions made until age 18 and then stopped.

Monthly contribution including tax relief (until age of 18) Value at 65

£100

£280,530.15

£200

£567,739.81

£300

£861,835.53

Data from Hargreaves Lansdown

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:says “getting to the age of 18 and seeing what they have accumulated can be a powerful incentive for them to really engage with their own financial planning. They’ve been given such a good start they don’t need to worry about finding large contributions of their own – they are able to make smaller contributions to their pension and have more money to save for house deposits or build up savings elsewhere. It’s a gift your child will surely thank you for.”

 

How do you set up a Junior SiPP?

The best, and probably easiest, way to set up a JSiPP for your young one is to create an account on one of the investment platforms such as

  • Hargreaves Lansdown
  • AJ Bell
  • Interactive Investor
  • Charles Stanley

and open a Junior SiPP account for your child.

Once you have that open you then need to transfer money into the SiPP account or, ideally, set up a standing order from your account to pay into it every month.

Then it’s a question of deciding what investments to put into that SiPP.

  • Most of the platforms have ‘off-the-shelf’ SiPP solutions and you could have a look at those to see if any of those take your fancy. Remember that as your child (or grandchild) has decades for the fund to grow you can afford to put money in quite high risk funds. Later on you, or they, can move the money into lower risk if you want but really for a few decades they can make the most of potentially high returns.
  • If you would like to choose the funds or other investments yourself then, again, keep in mind that your child has a long time for the money to grow so don’t be too conservative in your choices. The volatility of some funds or companies is likely to be smoothed out over time.
  • Another way to do it, of course, is to pay a financial advisor to set it up for you and choose the investments. It’s likely to cost between £1,000-2,000 for them to do this. If you don’t have a financial advisor already then find a well-reviewed on at Vouchedfor.

 

Which is best: Junior SiPP or Junior ISA?

be cheerful

Both Junior SiPPs and Junior ISAs are handy investments for your offspring. If you. have the spare cash each year it would be good to set up both for them!

However, there are some fundamental differences:

  • As with adult pension and ISA products, a Junior ISA doesn’t get the tax you would have paid on the money added in as it does with a SiPP. However, you don’t pay tax on any gains made in your SiPP. Also, when your child takes the money out of the Junior ISA they won’t have to pay tax on it.
  • With a Junior SiPP you can only put in £2,880 per tax year (topped up to £3,600 by the government). With a Junior ISA you can put up to £9,000 per tax year.
  • A child can begin to take money from a  a Junior ISA at age 18, but they can only take out funds from their Junior SiPP at 55 years old or later (probably much later by the time they get to that age). This can be a good or bad thing depending on your child, what they want to spend their money on and how savvy they are with their cash!

This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.

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