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[ JUNIOR SIPP ]
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EFFECT OF INVESTING JUNIOR SIPP ALLOWANCE
IN FTSE ALL SHARE OVER 18YRS
FTSE All Share (£137,405.37)
£140k
£120k
Analytics shows that £3,600, split into
12 monthly instalments of £300, and
drip-fed into the FTSE All-Share over
the past 18 years would have grown to
a pot of £137,405. This would then have
another 37 years to compound before
the child could touch it.
£100k
£80k
£60k
£40k
£20k
g1
Au
0
Source: FE Analytics
they may not realise the importance of
saving for a pension until it is too late,
you could give them a helping hand
through opening a Junior Self-Invested
Personal Pension, or SIPP.
A Junior SIPP is the same as a normal
SIPP, with the only difference being the
parent or legal guardian decides where
to invest the money until the child is 18.
You can put up to £2,880 a year into the
Junior SIPP, and the Government will
likely to prioritise saving for a deposit add tax relief at 20 per cent to make this
over their pension.
up to £3,600. Anyone can put money
While you may be reasonably
in the account. Like a normal SIPP, the
investment savvy yourself, there is no
account holder cannot access the money
guarantee that your children will take
until they turn 55 (rising to 57 in 2028).
a similar interest in their long-term
It is easy to understand the benefits
finances. If you are concerned that
of starting so early. Data from FE
While you may be
reasonably investment
savvy yourself, there is no
guarantee that your children
will take a similar interest in
their long-term finances
FE TRUSTNET
Real life
Chris Spear, managing director at
Spear Financial, says that while
the Junior SIPP is a good idea in
principle, in reality a product that
prevents your child from accessing
such a huge amount of money for
most of their life is not suitable for
the vast majority of the population.
“For me, it comes down to real life
planning,” he explains. “What I was
brought up with when I was training
was the idea of perfect planning,
which is ‘this is what you will do
because this will be the outcome’. But
it always used to get messed up by real
life: ‘I need to get hold of my money,
I lost my job, I am getting divorced’.
Whatever your plans are, real life
always gets in the way. So I am very
mindful that sometimes it might not
be the perfect solution.”
As a result, Spear thinks
these products are only
suitable for the very wealthy.
“Obviously, pensions
are free of inheritance
tax,” he adds. “And one
of the inheritance tax
exemptions is making
regular gifts out of surplus income.
So it’s the perfect solution for a
grandparent who wants to give to
their grandchildren, but doesn’t trust
them with the money at the age of 18.”
“This is one of the advantages over
the Junior ISA, which says little Harry
can get hold of his money when he
is 18 and blow it on wild parties and
everything. So the pension has always
been a good alternative route.”
Moving the goalposts
Chris Wise, director of Whinchat
Financial Planning, says another
potential issue with Junior SIPPs is
the Government’s record of “moving
the goalposts” with pensions.
“What we have seen with pension
legislation over the years is that
it can be tweaked: on tax relief,
lifetime allowances and annual
trustnet.com