Junior SIPPs

dj1471

What do people think of opening a JSIPP with a small one-off lump sum investment (around £500) into something high-risk - is it worth it, or should I just put it into a JISA instead? I don't have enough spare cash to pay into both a JSIPP and JISA.

My daughter is 2 so the investment would be for 58 years, assuming access at 60 (obviously can't predict what changes will be made to SIPPs/pensions in future). I'm thinking about an actively-managed EM fund. In an index tracker averaging 5% growth it'd only be worth around £9k - barely worth it given inflation.

Obviously I'm not trying to provide a useful pension, just hoping to give her a respectable lump sum and a bit of extra cash upon retirement. With such a small investment I'm happy to push the risk as high as it can go - I won't be around to hear the complaints if it ends up worthless

Any thoughts greatly appreciated!

Alexland

I am generally against child SIPPs as they might be able to make more efficient contributions themselves once in employment using salary sacrifice to save national insurance or getting higher rate tax relief so it seems a shame to be wasting their limited LTA (which has just been frozen for the next few years) on contributions that only get 25% tax relief. Such contributions can be made almost anytime and in the meantime the money could still be growing in your own investment accounts with flexibility to give it to them whenever it might be useful.

I only really see the value in them if you are looking to reduce the size of your estate for inheritance tax (again frozen) or have fully used your own ISA and SIPP allowances and are unable to manage a GIA to avoid tax. Having said that I just opened a couple for our kids with a minimal contribution as a punt to see if they can qualify for a protected retirement age following the prompt from the recent consultation about increasing minimum pension access age.

dunstonh

There is no such tax wrapper as a Junior SIPP.    Virtually all retail pensions accept minors.    Any pension referring to itself as a Junior SIPP is doing so for marketing purposes only.
So, your daughter can use virtually any provider and have a SIPP, PPP, SHP or master trust scheme (such as the robo providers).

'm thinking about an actively-managed EM fund. In an index tracker averaging 5% growth it'd only be worth around £9k - barely worth it given inflation.

It would be highly unusual to invest 100% into EM.   The returns on an index tracker would depend on the index your are tracking.  A global tracker would be more typical for this sort of thing.

eskbanker

Personally I'd favour the JISA route as I've never really understood the appeal of committing funds for the ultra long term when (generalisation alert) most young adults are more in need of a helping financial hand at 18 than 60, or whatever the equivalent will be by then.  Nothing to stop you sitting down with her at 18 and advising the benefit of starting a pension early....

Nurse2047

I set I set up Fidelity SIPPs for my two children, I share the money equally between SIPP and JISAs

Reaper

I am in favour of child pensions BUT only if you already have shorter term investments such as a JISA already, which it doesn't sound like you do.

MaxiRobriguez

Alexland said:

I am generally against child SIPPs as they might be able to make more efficient contributions themselves once in employment using salary sacrifice to save national insurance or getting higher rate tax relief so it seems a shame to be wasting their limited LTA (which has just been frozen for the next few years) on contributions that only get 25% tax relief. Such contributions can be made almost anytime and in the meantime the money could still be growing in your own investment accounts with flexibility to give it to them whenever it might be useful.

I only really see the value in them if you are looking to reduce the size of your estate for inheritance tax (again frozen) or have fully used your own ISA and SIPP allowances and are unable to manage a GIA to avoid tax. Having said that I just opened a couple for our kids with a minimal contribution as a punt to see if they can qualify for a protected retirement age following the prompt from the recent consultation about increasing minimum pension access age.

Interesting punt - smart.

Has there been any confirmation of the date a pension account must be open in order to allow current retirement age still do you know?

Our little one is due in May, I might make the same play if that route is still available then.

Alexland

MaxiRobriguez said:

Has there been any confirmation of the date a pension account must be open in order to allow current retirement age still do you know?

There is a thread on the pensions board but the consultation is suggesting the protected access at age 55 would be for pensions that had that access age on the date the consultation was published (so we missed it by a few weeks for our kids) but it is only a consultation and the final detail might have a later date such as the end of the tax year etc. Even if the kids don't get protected access at age 55 then they might get protected access at age 57 next time they increase the age to 58 etc.

https://forums.moneysavingexpert.com/discussion/6240982/increase-to-minimum-pension-age-from-55-to-57-february-2021-hmt-consultation

I'm now debating how much to put into the child SIPPs as we have already contributed £20 (and will get the £5 tax relief in time) but Fidelity made me setup the regular payment plan (as we didn't make a £1k lump sum contribution) but there's nothing in the terms to say I cannot just cancel the regular payment and they would have to keep the SIPP open with just £25 in it. I would really rather invest money into our own ISAs for the greater flexibility. We already have plenty in our other Fidelity accounts so are reasonably valuable Wealth customers making them run a couple of piddly £25 accounts. They would probably let us get away with it as the account value makes no difference to them as they don't charge on child accounts.

MaxiRobriguez

Thanks, that's really helpful.

pip895

I can’t help thinking it’s unlikely that any early retirement advantage you think you are giving your child is unlikely to survive 50+ years of government meddling.  You have a slightly better chance that ISAs will still be advantageous though..

Alexland

pip895 said:

I can’t help thinking it’s unlikely that any early retirement advantage you think you are giving your child is unlikely to survive 50+ years of government meddling.

Maybe but so far the government seem to have been good at honouring the various protected retirement ages and LTAs that people have secured. The general trend with retirement products over recent decades has been the sooner you open them the better the terms (but not always the charges....).