Saving for children - 18 or pension?

[Gambino1726]

What is better and wiser when saving for children? I put money each month away for her future. Currently in a high saving account before moving it to either a ISA for when she turns 18 (or 21) but recently thought a Junior SIPP or index fund might be better for compound interest.

one day I won’t be around anymore and she’ll benefit when she turns 57. But is that wise or save for 10/15 years from now?

I don't think you should start your child's pension. The biggest hurdle she is going to face in life is buying a house, so if you can help with the deposit then that's amazing.

I think if you can do a bit of both then that’s wise. We have done savings (for house deposit) and this year have started their pensions.

If you have £100 a month to save, I'd put £20 in a SIPP and £80 in a junior S+S ISA. Both invested in passive index linked funds

Read money saving expert dot com about opening a lifetime isa. This would be more useful as it attracts a 25% bonus.

It's not really an either or for me; I agree with a previous poster that if you can manage a bit of both it would be better. Sure, buying a house isn't going to be easy but home ownership isn't right for everyone anyway and the economics of housebuying are more likely to change than those of funding yourself in retirement. In a world where precarious employment might potentially mean both an inability to commit to a mortgage and time out of occupational pension schemes, prioritising buying a house in 15-25 years time at the expense of fifty years of compounded growth in a pension isn't a choice I'd be willing to make for my DCs. Also, if your DC find themselves claiming means-tested benefits then whatever is in an ISA would be counted towards their assets, pensions would not.

If you can achieve a growth rate of 7.2% - fairly achieveable on average in a SIPP - then the investment will double in value every ten years - it's not going to seem like much now but by the time your DC is 57 even a few thousand a year now will have been absolutely game-changing.

You can put up to £3600 gross into a SIPP on behalf of a non-earning child each year - £2880 of your own cash and then the goverment adds £720 in tax relief. The £2880 I put in my DD's SIPP when she was seven will, at 7.2% growth, be worth £115,200 less fees/charges when she is 57 and able to access it, even if we never put another penny in again.

You can only open a Lifetime ISA from 18 upwards.

Great advice. Thanks. Though £110k might not be much in 50years (probably about £30k in today’s money), it’s better than nothing.

Do the math again.

UK inflation over the last 50 years has averaged 4.16%. If that holds true for the next 50, then your £2880 contribution will be the equivalent of £22100 in 50 years, but if it can grow at 7.2% then (with the tax relief) it will be worth more than five times that.

I picked 7.2% because with the Rule of 72 it's easy for back-of-fag-packet calculations on how long it takes to double your money. The S&P 500 actually has an annualised average total return of 11.99% in the last 50 years, and 8.108% even after adjusting for inflation, so the compounded growth would be considerably higher if the same holds true for the next 50 years.

I’m contributing to my grandson’s JSIPP, £2880 a year, opened by his parent and putting £50 a month into a JISA for him. I like the idea that he can only blow the JISA amount and not the JSIPP if he ends up not being sensible at 18. He is 2 years old currently. I think this is a good balance.

I’m saving for my DS(16) and have it split currently-some into S&S ISA and some into a JSIPP. I’ve no idea right now what he might want to do with his life, he definitely doesn’t lol…so don’t want to tie everything into whatever retirement age the government decides for him going forward - so trying to keep his ability to access flexible.

Both get both open but save more into jisa.

@WhoInvitedHer make sure you or and parent talks to him about saving and proper investing thn

I'm doing both. Put £9k into 16yo's JISA this year and £2880 into a new SIPP. I'd love to be able to give all of my children £100k for a house deposit and another £100k (in today's money) at retirement age

I started both for my children. They are now 20 and 17. One big advantage that I can see to them having these accounts already open and invested in stocks and shares is that the accounts are open and they can easily add to them when they start working. I have reduced the barriers to entry so adding more money is easy. I've spoken to them about their investments for many years before they turned 18 and they understand the money is for long term user, not frittering away.

Absolutely but he is only 2 at the moment! We spoke to both our children about savings and investments when they were growing up but they both have developed very different views on spending versus saving

It may still be worth similar - a low cost index tracker has increased an average of 10-11% a year in the past, minus fees and accounting for inflation, 6.8% growth wouldn't be an unreasonable projection.

Have you used all of your own ISA allowance? I’d rather keep everything in my name (apart from a SIPP) so that the money can’t be frittered away!

"Currently in a high saving account before moving it to either a ISA for when she turns 18 (or 21) but recently thought a Junior SIPP or index fund might be better for compound interest."

You'll get far better returns if you open a junior stocks and shares ISA now, instead of a savings account. The ISA will then become their's when they turn 18 and they will have a house deposit, or funds for university.

If you have spare cash in the future you can also open a junior Sipp, and government will top up your contribution equivalent to 20% taxb another poster has given you the numbers up-thread.