‘Your child will thank you’ How you could help children build pension pot of £850,000

Pension: Expert gives advice on preparing for retirement

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Britons can pay into a Junior Self-Invested Personal Pension (JSIPP) for a younger member of the family from when they are born until they turn 18. At 18 it becomes a SIPP and the young person can take control of making contributions for their own retirement.

Up to £2,880 per year can be put into a JSIPP, and the tax relief received will then gross the contribution up to £3,600.

Of course, people can make smaller contributions too, as and when they see fit.

Starting someone’s pension journey early means they could have even longer to benefit from the power of compound returns.

Calculations from Hargreaves Lansdown showed the staggering impact a JSIPP could have on an individual’s eventual retirement fund.

By contributing £100 per month, the saver would have accrued a pension pot of £33,475.32 for a young person by the time they turn 18, assuming returns of five percent per annum.

Even if no further contributions were made from this point on, the SIPP would still benefit from investment returns over time and could be worth £280,530.15 by the time the fund owner reached 65.

A £200 per month contribution would mean a young person having a pot worth £66,950.64 at age 18, and this could rise to £861,835.53 by the time they get to age 65, according to Hargreaves Lansdown.

Someone contributing £300 per month to a SIPP from birth to 18 would have amassed £100,425.95.

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This could then eventually be worth a whopping £861,835.53 at age 65.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, explained the benefits of utilising a JSIPP.

She said: “Babies and small children are deluged with gifts – fluffy animals and squeaky plastic toys that are quickly broken or abandoned in favour of playing with the box they came in.

“A Junior SIPP (JSIPP) may not feel quite as exciting as the latest must-have toy but in terms of a gift with lasting impact you can’t get much better.

“There is no better way of seeing the power of pensions than looking at what a JSIPP can deliver over time.”

Mr Morrissey added that if a child hits age 18 with over £100,000 in their pot, they would be well ahead of their peers who won’t be auto-enrolled for at least another four years.

She continued: “This sum then has almost 50 years to keep growing and even if they didn’t make a contribution themselves they could still end up with a sizeable pension.

“Even if you can’t afford to contribute the whole £3,600 per year for the whole 18 years you can still give them a real head start in life.

“Contributing £100 per month to their JSIPP would see them accumulate over £33,000 by age 18 and this could be £280,000 by the time they come to retire – it’s a real leg up the retirement planning ladder.

“Even ad-hoc contributions as and when you can afford them will really build up over time.”

Ms Morrissey believes that by introducing young people to the value of pensions early on, it can shape a healthy attitude towards saving.

She concluded: “Getting to the age of 18 and seeing what they have accumulated can be a powerful incentive for them to really engage with their own financial planning.

“They’ve been given such a good start they don’t need to worry about finding large contributions of their own – they are able to make smaller contributions to their pension and have more money to save for house deposits or build up savings elsewhere.

“It’s a gift your child will surely thank you for.”

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