Junior SIPPs

They say it’s never too early to start saving for a pension. Junior SIPPs take that concept very literally. They let you open and start paying into a pension scheme for your child from the day they’re born. Inevitably, most new parents will have more immediate priorities on the day itself than setting up their bundle of joy for a dim and distant retirement date. But setting up your child for a secure financial future should be fairly high on your early-years to-do list. A junior SIPP is one of many long-term savings products worth considering.

What is a junior SIPP?

A junior SIPP (self-invested personal pension) is a private, defined contribution pension scheme taken out for a child by a parent or guardian. The annual contribution limits are lower for a junior SIPP than for an adult SIPP. But, as with adult SIPPS, tax relief is available on money paid in.

How does a junior SIPP work?

With a junior SIPP, a parent or legal guardian sets up, manages and contributes towards their child’s future pension. As with regular SIPPs, the holder decides where the money is invested and is responsible for managing the account. With a junior SIPP, the parent or legal guardian does this on behalf of their child until they turn 18.

The maximum annual deposit a parent or guardian can make is £2,880 per year. This benefits from basic-rate (20%) tax relief. When the child turns 18, ownership will pass to them, and they’ll take on responsibility for managing the pension.

As with any private (or workplace) pension, you or your child can’t access money in a junior SIPP until the child reaches a certain age. Currently, that’s 55 though the government has plans to raise the access age to 57 from April 2028.

What are the age requirements for a junior SIPP?

The only age requirement to open a junior SIPP is that a child must be under 18. You can even set it up from the day your child is born, assuming you’re not (understandably) preoccupied with more important matters at the time.

If a child is 16 or over, they are likely to need to give their consent and sign paperwork for a junior SIPP to be opened in their name.

Who can make contributions to a junior SIPP?

Only a parent or legal guardian can open a junior SIPP on a child’s behalf. However, anyone (grandparents for example) can make payments, up to the maximum annual deposit level (£2,880 as of the 2023/2024 tax year).

What are the benefits of a junior SIPP?

A junior SIPP is arguably the epitome of advance planning. Starting contributions early gives the pension investments the maximum possible time to grow over a child’s lifetime. Generally speaking, the longer you keep money invested, the greater the likely return. Thanks to the compound effect of investment growth, even relatively small contributions could build up into a pretty decent pension pot by the time a child eventually retires. This is subject to the usual caveats of investment market fluctuations and the risk of investment value going down and up.

The other key benefit is that even though most children are unlikely to earn enough income to pay tax, deposits into a junior SIPP benefit from basic-rate (20%) tax relief. That means if you pay in the maximum personal contribution of £2,880, the government will top up the account by an extra £720. That equates to a total contribution of £3,600 into the junior ISA (the £720 top-up is 20% of this total).

Are there any drawbacks to junior SIPPs?

As with any form of investing, putting money into a junior SIPP comes with the risk of investment loss. Especially if you or your child chooses to follow a higher-risk investment strategy. Though in principle, any short-term volatility should be mitigated over the long investment period.

Before you jump into opening a junior SIPP, bear in mind that the money you contribute will be locked away until your child turns 55. They won’t be able to use it for anything before then (such as buying a property). And there’s a good chance you won’t be around to see them reap the benefits.

SIPPs are designed to be proactively managed by the account holder. As control of a junior SIPP passes to a child when they turn 18, you’ll need to make sure they have the investment knowledge they need to take on that responsibility. Of course, there’s nothing to stop you continuing to offer guidance to help them make decisions.

What are the alternatives to a junior SIPP?

There are other types of children’s pension available, such as stakeholder children’s pensions.

Alternatively, if you’re looking to save for your child’s future, but would rather the money wasn’t tied up until they retire, there are a few other savings vessels worth considering. These include:

• Junior ISAs. These can be either cash junior ISAs or stocks and shares junior ISAs. You can pay in up to £9,000 in the 2023/2024 tax year, and returns are tax-free. Children can start managing the account from age 16 and start accessing money from age 18.
• Children’s savings accounts. Savings accounts aimed specifically at children are on offer from many banks and building societies. Many offer decent introductory rates. Access to the money depends on the terms of the savings account. Fixed-term accounts may tie the money up for several years, while instant access accounts allow flexible withdrawals.
• Buying NS&I premium bonds for children. Anyone can buy premium bonds for a child under 16 (with the approval of their parent or guardian). Each child can hold up to £50,000 worth of bonds. Premium bonds give holders the chance of winning prizes each month, ranging from £25 to £1 million.

Of course, these savings options aren’t mutually exclusive. For example, you can take out both a junior SIPP and a junior ISA for your child if you wish.

How much can you put in a junior SIPP?

The maximum amount that can be put into a junior SIPP by any contributor is £2,880 per year (as of the 2023/2024 tax year). The government will top this up to £3,600 via tax relief.

Where is the money in a junior SIPP held?

As with adult SIPPs, the money in a SIPP is held in a range of investments that you select. Most junior SIPP providers will let you invest in, for example, corporate bonds, gilts, exchange-traded funds (ETFs), investment trusts, open-ended funds, unit trusts, and individual shares. It’s sometimes possible to invest in commercial property and land too. You can’t use a SIPP to invest directly in residential property.

Which providers offer a junior SIPP?

Many of the main investment platforms (or investment “supermarkets” as they’re sometimes called) offer junior SIPPs as well as adult versions. These include AJ Bell, Best Invest, Charles Stanley, Fidelity, Hargreaves Lansdown and Interactive Investor. Some mainstream banks, such as Barclays, also offer junior SIPPs.

How do I find the best junior SIPP?

Several providers are offering SIPPs (though not as many as offer regular SIPPs). So, you’ll want to spend a bit of time researching and comparing your options. If you’re unsure where to start or don’t have the time, you may want to seek independent financial advice. There will be a charge for this, but it will save you time and effort and help make sure you select the best scheme for your child’s future.

If you’re confident making your own financial decisions, perhaps because you already have a SIPP yourself and know what to look out for, it still doesn’t hurt to refresh yourself around things to consider. When you’re comparing providers, check:

• Annual scheme charges applied by the platform you use. These are often charged as a percentage of the money you have in the scheme.
• Fees for trading shares or making fund transactions.
• Any other fees, such as charges to transfer the junior SIPP to another provider.
• Any minimum deposits required, either as a one off or on a regular basis.
• The range of investment options available to suit your preferences. Some providers will have more options than others.
• The guidance and support that the provider offers to help you make decisions and keep an eye on investment options. These might include online tools, an app or a helpline.

Which providers offer the cheapest SIPPs for children?

Unfortunately, there’s no simple way to answer this. It depends on several factors. Most platforms will charge an annual fee to host and administrate the account. This is a key cost to compare. It’s usually charged as a percentage of the amount invested in the account. Many providers charge less than 0.5%, but even small differences (the difference between 0.25% and 0.45%, say) can add up over time and eat into the value of your child’s pension pot.

But you can’t rely on comparing annual platform fees alone. You also need to look at charges for trading shares or making fund transactions. These are often fixed fees charged on a per-transaction basis, so how much they cost you will depend on how many transactions you make over the year.

And, of course, cheapest doesn’t necessarily mean best for you. Bear in mind all of the considerations we’ve outlined above when choosing a junior SIPP.

How do I pass a junior SIPP to my child?

When a child turns 18, the control of the account and responsibility for managing the investments in their junior SIPP will pass on to them automatically.

When can you withdraw money from a junior SIPP?

Like most other types of pension, the money held in a junior SIPP can’t usually be accessed until the holder turns 55. This age is due to rise to 57 in 2028.

They’ll then have the same choice of what to do with the funds in their SIPP as with any other defined contribution pension pot.

Where can I find advice on junior SIPPs?

Directories that can help you search for a regulated financial adviser to help you make a decision on opening a junior SIPP include the government’s MoneyHelper website, the Society of Later Life Advisers, The Personal Finance Society, and Unbiased.

Pros and cons of junior SIPPs

Bottom line

Junior SIPPs can be a good way of investing for your children’s future. Starting a pension for them early in life gives even relatively small contributions the chance to thrive. Bear in mind that SIPPs are often regarded as riskier than other types of pension. They offer a wider range of more sophisticated investment options, and you’re in full control. So they may be best for people who are already experienced investors or who are happy to pay a financial adviser to help choose and manage the account. With those caveats in mind, the tax breaks on contributions into a junior SIPP can make them an extremely valuable way to save.

Frequently asked questions

• Do junior SIPPs provide the same benefits as SIPPs aimed at adults?

  More or less, yes. Like regular SIPPs, contributions into a junior SIPP benefit from basic-rate (20%) tax relief. This boosts the value of deposits. And you’ll have the same control over the investments in a junior SIPP as you would in a SIPP you opened for yourself, though this can carry additional responsibility and risk.

• What happens to a junior SIPP when a child turns 18?

  When a child you’ve opened a junior SIPP for turns 18, ownership and responsibility for managing the account will be transferred to him or her. This effectively turns the product from a junior SIPP into a standard SIPP.

• How long can I pay into a junior SIPP for?

  You can pay into a SIPP that you open for a child for as long as you like, even after they turn 18 and take over management of the account. They’ll benefit from tax relief on your contributions. Your own tax bill won’t be affected. How much can be paid in and benefit from tax relief depends on whether they pay any income tax themselves. But, even if they have no income, you can pay in up to £2,880 a year that will qualify for tax relief.

• Can I have both a junior ISA and a junior SIPP?

  Yes. These are both valuable ways to save for your child’s future and serve slightly different purposes. A child will be able to access the money in a junior ISA from age 18. They could use it towards the deposit for their first house, for example. The money in a junior SIPP, however, can’t be accessed until they reach the age of 55. It’s designed to be used to fund retirement.

• Can I transfer a junior SIPP?

  Yes. You can either do this while your child is still under 18, or your child can do so later in life. They won’t be able to access the money for up to 55 years. Over this period, the market may move so that what was once a great product is no longer the best. If so, it may be best to transfer to a different provider. You can usually do this by making a request with a new provider and filling in appropriate forms to initiate the transfer. Most junior SIPP providers don’t charge fees to transfer to a new provider. Check this before you go ahead just in case, though.