Childs pension

[Youseethethingis]

I'm thinking of setting up a SIPP for my 2 year old. He already has a cash savings account and also a JISA, combined value of about £10k. I'm happy to just leave that to grow and FIL pays into his cash account monthly. I think that's plenty to be going on with aged 18 and not necessarily particularly sensible.
I'm now focusing on building my own savings/investments but I'd still like to put something away in DS name, hence have arrived at a junior SIPP.
I'm thinking of moving maybe £1k across from his cash account to get things going then pay in £30 a month from then on.
Where would you put it? Its not a huge amount so don't want it eaten up by fees. Easiest thing would be to just open it alongside his Vanguard JISA but eggs and baskets etc. are holding me back.
Baffled by it all

Am I missing something ?

Why would anyone pay into a child pension, unless they are rich ?

Does a child pension attract the same tax relief that is added for adults ?
Obviously no contributions added by an employer

If you are paying into a child pension, then I assume
You have no debts, including mortgage ?
You have your own private pension ?
You have your own savings, if you lost your job ?
You perhaps pay into a child ISA for future things like further education, property purchase, wedding ?

I assume that the child pension will not be accessible until the earliest 55 or older ?

What is the reason for paying into a child pension?

The only positive I can see is compound interest from starting a pension so early

I was going to say yes, you are missing quite alot, but I see you got there in the end.
It's the compound interest I am after and I see it as a positive he won't be able to access it until he's much older. That's the whole point. I'd be saving monthly for him anyway but as his brother was stillborn and we got a life insurance payout he's all set and I don't want him to have access to a really huge amount of money at the ages of 18 so that's why I don't want to put more into his JISA or savings account, although I do still want it to be in his name.
Also, you'll see I said I wanted to pay £30 per month, not "rich" territory but intended as a head start on his pension only. I'm not martyring myself to pay his whole retirement.

@D00r2D00r2

Because of compound growth over a longer period of time.

£50/month over 50 years with 7% growth, will give you £270k.

Whereas, if you only invested for 25 years, you would have to invest £325/month to get the same amount.

Definitely worth it.
We started stakeholder pension funds for our teenage children when they were introduced, paying in £60 per month each. Yes you do get tax relief. We stopped paying into the pensions once they started full time employment with employer pensions. Their personal pension funds increase by approx £1800 per year even though they haven't had money paid in for a long time.

Ok , yes compound interest
I have a personal pension myself

Potentially people still have 50 years to work or more to save up for their own personal pension

You could invest in gold, art, antiques, premium bonds, which are more liquid than a pension

I don't want it to be liquid or wasted on inflation.
I have savings. My son has savings. I'm not sure why you are so against taking the pressure to save big for retirement off him when he's in his 20s and 30s but I'm doing it anyway and it was advice on who to use I was looking for.

Junior SIPP can be the same type of investments as the JISA as they are both long term so can take a higher risk should you choose to do so. I wouldn’t differentiate investment type between the 2 for a child.
However, I would only start a JSIPP if I’d maxed out the JISA and my own SS ISA and annual SIPP contributions as honestly you have no idea what will happen before your child reaches 57 (access to SIPP likely to have increased in age by then too). Your child may be better off with a maxed out JISA so they can afford a home earlier in life etc and then they can contribute to a SIPP themselves with their savings. It just gives your child far more flexibility and there wouldn’t be any changes in compound interest as you would be gaining it via the JISA. The only difference would be if they themselves stopped contributing to a pension when they’re older

My DC started paying into work place pensions at 21 but staring earlier can’t be a bad thing.
I’d prioritise my own pension but if you have money for both then it sounds a good plan.

I have set up pensions for both my kids. I pay £40 per month per child and I think they get something added from the government. I started them when one was ten and the other was twelve but I wish I’d started earlier.
If you can spare it I think it’s a good idea. I will pay into them until they are 30 and then they can either continue them or just keep them to grow.

I use Hargreaves landsdown but no idea if they are cheapest etc

£5,580 between now and his 18th birthday I'm talking about investing in a pension for him. This is not a huge amount of money that I'm saving for him and saving nothing for myself.
As I said, my main focus is my own savings and pension. I am happy with the amount he already has in cash and investments.
I am not trying to do him out of a house deposit. I'm trying to give him breathing space and a lesson on compound interest that he can't fuck up the day after his 18th birthday if he chose to. He can be as flexible as he likes with the money he already has and the growth on that. Blow the lot on wine women and song if he felt like it. I want him to have a pension.

Fair enough OP. I personally would go for tech stocks- think Microsoft, Amazon etc. If you want to stick to funds, you are right to be wary about fees but there are some that consistently achieve 20%+ annually- look at Fundsmith Equity. This is not financial advice and DYOR.

I’m looking to do the same but I don’t know enough to pick funds and stuff. I just want something managed for us. I’m assuming they exist?

I spoke to my financial advisor about this and he said that by investing a small amount in a pension, when a child is born, by the time they are adults and retirement age the compound interest makes it worth while.

But he also said that it's money tied up until that person reaches pensionable age. After a discussion I decided to put it into an isa so my dc could access it for things like driving lessons, first cars, houses etc.

I do feel quite strongly about pensions though, as I was lucky to have a good pension in my late teens through my 20s which has pretty much set me up for retirement. I'd love for my dc to be in a similar position when they are in their 50s.

The tax "relief" alone adds 20% to whatever you put in, making a pension an extremely attractive long-term investment for a young person. PP's have covered the drawbacks already.

Personally, my kids' pensions are invested in Scottish Mortgage and Smithson. Both investment trusts. Scottish mortgage is a growth oriented trust managed by Baillie Gifford with a heavy tech tilt. Smithson is a global smaller companies trust managed by the same team as Fundsmith. These may or may not be suitable for you.

Most platforms allow you to set up a regular investment at a pretty low cost. Check dealing fees and decide on how to build up accordingly (I built up the investment in one then the other after so that I wasn't paying 2 lots of dealing fees each time). In terms of erosion by management fee, I personally care more about the net return after fees than the absolute level of fees.

Does Vanguard have a junior sipp though? I thought only fidelity did?

Vg idea OP and I am bumping it to the top of my todo lists. Todays kids are likely going to be bowed down under student debt, property costs, childcare costs, high taxes to pay for the elderly. Anything you can do to prepare for their adult lives and take part of that burden off them is a great idea.

You’re very privileged if you have spare money for a child’s pension, perhaps consider helping out those who are living in poverty instead.

I think we need to stop babying our children & let them sort their own retirement out. Crazy stuff.

I think this is a really good thing to do. It shows them how pensions can grow and starting early makes all the difference. I started adding to my pension as soon as I started work age 16 but wish I had understood more about finances as I would have topped it up more especially the DC one.

I think we need to stop babying our children & let them sort their own retirement out. Crazy stuff.

I think OP is actually doing the opposite by starting with a small amount and showing them how you need to save now for their future even if that seems a life time away.

I am very privileged but also I'd like to point out that lots of people spend more than £30 per month on their phone contracts (I don't) and don't give to charity (I do, monthly) so I'm not sure I deserve the chippy little comments like that.
Thanks to PPs who have actually engaged with the question I asked. It's good to see others have done this and don't regret not giving more to charity or providing too much future financial security for their children.

@fluoropostit
It's not a separate product, you can open any SIPP for a child. I'm only unsure what is the best product to go for as I'm not investing sums which will end world poverty and the fees Vs what I'm paying in might not stack up that well if I choose the wrong one.

I use hargreaves lansdown but actually fee efficiency means i should move to aj bell. But I can't do my particular investments with Vanguard, otherwise I'd go with them for fee efficiency.

So definitely not only fidelity that does them.

And they are packaged separately as a JSIPP rather than a standard sipp. Probably to do with permissions and control, as obviously the child can't do the paperwork for themselves.

My son is 5. I opened a JISA for him when he was born and moved it to Vanguard two years ago. It's currently sitting at £38K.

I opened a JSIPP for him earlier this year. Vanguard don't do it so I went with Fidelity which charges no fees for it. I put in the max £2880 and HMRC topped it up by £720 (of free money). It's currently sitting at £4K.

I think if you can afford it you should definitely do both. The ISA will give them a boost at the start of their working life and the SIPP at the end of it.

Even if you can't afford the full whack put in say £100 a month. It changes the psychology and makes you curious about this stuff making you learn. Your child will thank you. I feel so good that I am giving him a chance and opened both accounts for him. It's a great feeling.

The key as others have said is the magic of compounding esp with the SIPP which is like 60 years.

Also don't waste time with a cash ISA. I went with a SS JISA all in (US) equities.

I’ve been tempted by this but haven’t done it yet as it feels so far away but the potential benefits for the compounding mean a little now could set them up along the right path re retirement savings so logically it would be a good thing to do.

I’m a long-term planner but for me at the moment, the concept of the child pension is a bit too far away and I’d rather prioritise shorter-term fun. Head would say pension, heart says more days out or experiences and heart is winning over head.