Your child might be decades away from retiring – but helping them build their pension early on will help them have a sizable pot once they reach retirement age. With the ability to deposit up to £3,600 per year without paying income or capital gains tax, a junior SIPP account is an excellent way to do so.
The UK’s traditional pension system is not adequate for older adults to maintain a comfortable life after retirement. The state pension pays out only £10,600 per annum and only after the age of 66, providing only 58% of previous earnings from work.
Pension investments are free from UK income and capital gain taxes and provide an automatic 20% boost from the government.
Gifts to your child’s pension are often covered by inheritance tax exemptions and could fall outside your estate for inheritance tax purposes.
Overall, it’s an excellent and cost-efficient way to gift your child a 20-year head start.
Junior SIPP Providers – Our Top Picks
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
 | 7.9 | Visitajbell.co.uk | ||
 | 8.3 | Visithl.co.uk | ||
 | 6.5 | Visitfidelity.co.uk | ||
 | 6.5 | Visitbestinvest.co.uk |
Best Junior SIPPs Reviewed
We've gone through the top junior SIPP providers in the UK – here's what we found.
Overall best junior SIPP account – AJ Bell
Best for financial advice – Hargreaves Lansdown
No annual charges – Fidelity
No transaction fees for funds – Bestinvest
The UK’s first online self-invested personal pension provider, AJ Bell, remains one of the major investment platforms in the country. Despite its size and calibre, it’s still one of the cheapest pension providers available.
Besides the low costs, the sheer market reach sets AJ Bell apart from the competition. You have over 2,000 funds, as well as stocks, bonds, gilts, and investment trusts, at your disposal.
By activating regular investments (starting from £25 per month), you can ensure that you won’t miss out on growing your child’s pension pot. The regular investment scheme also lowers the per-deal investing fee to £1.50.
One caveat is that the minimum contribution to a SIPP is £1,000, including the tax relief. This means that you have to start with at least £800, and the government will add £200. Albeit still accessible, the threshold is at the high end of the market.
Nevertheless, AJ Bell is a trusted name in the UK with competitive charges for its SIPP accounts. If you are confident with a DIY approach to managing your child’s retirement account, it’s an excellent choice.
- Wide range of financial products available
- Annual charges capped for share investments
- Ability to earn interest on cash
- DIY only, no expert help available
- Annual charges for fund investments are not capped
- High minimum investment threshold
Much like AJ Bell, Hargreaves Lansdown is a veteran within the UK’s investment market, trusted by more than 1.7 million clients across the country.
With annual charges varying from 0.45% to 0.1%, it's by no means the cheapest option available. Yet, it can be a suitable choice for those who require financial advice whilst managing a junior SIPP to maximise returns and maintain tax benefits.
The financial advice services are flexible and require no long-term commitment. It’s possible to get investment advice to help build a diversified portfolio and help with long-term financial planning, which includes retirement planning.
The flexibility allows clients to set up milestones on the growth of their child’s junior SIPP, and check in with a financial adviser along the way to ensure that they are on the right track.
- Flexible financial advice
- Competitive interest rates for cash
- A trusted provider
- Platform is not very user-friendly
- Annual charges are steep for many
- Minimum cost for financial help starts from £495
One of the largest investment companies online, Fidelity, is among the top-rated providers for regular and junior SIPPs alike. The outfit is truly set apart with the wealth of options available. From funds to bonds, it’s an excellent choice for those looking for a low-cost, DIY platform.
It’s particularly strong in its collection of over 3,000 funds. While Fidelity’s own funds are free to deal, the firm also negotiated for lower charges for over 200 funds. There are also no charges for pension transfer or setting up an account.
If DIY is not your thing, you can also browse through Fidelity’s numerous ready-made portfolios. It’s by no means an equivalent of HL’s financial planning service, but it is a low-cost alternative with an average service cost of 0.35%.
- A wide array of investment options
- Discounted funds available
- No annual charges
- Account verification is long
- High broker-assisted dealing fee of £30
Bestinvest offers a wide range of investments for its junior SIPP product, and levies no fees for fund dealing. While share transactions are still charged, it’s a low £4.95 – which is among the cheapest available on the market as of this writing.
The provider also makes transferring a breeze – there are no charges to transfer an existing SIPP, and they will cover £500 of the exit costs if your current provider charges any. Considering the above-average interest on cash, deductions on transfer costs, and free-of-charge fund investing, it’s an excellent choice for budget-conscious investors.
- Wide range of educational materials
- Easy to navigate platform
- Excellent collection of ready-made portfolios
- Unexpected charges may occur – such as £30 fee for phone-assisted investing
- Higher ongoing charges for some of the ready-made portfolios
How Does a Junior SIPP Work?
A junior SIPP works in a similar fashion to a regular SIPP: it’s simply a type of personal pension allowing savers to manage their own investments, and have some tax benefits.
A legal guardian or a parent can set up a pension for their children, and manage it while they’re minors. After the child reaches the age of 18, they can take over the management and decide where and how the funds will be invested.
The funds, though, remain locked until they reach 55. Note that the government is in the talks of extending the age limit to 57 by 2028, so it might be safer to plan for 57.
Once they reach the necessary age, your child can take 25% of their SIPP as a tax-free lump sum, and withdrawals beyond tax-free cash will be subject to income tax at their marginal rate.
How much money can you put into junior SIPPs?
Tax benefits typically make SIPPs quite special. As long as annual contributions remain within the specified limit set by the government, the returns in a junior SIPP are exempt from income tax and capital gains tax.
Self-invested personal pension and tax rules
The annual allowance for the tax year 2023/2024 is set at £3,600, which includes the basic tax relief of 20%. Here’s how it works:
The government tops up any money you pay into a junior SIPP, or any SIPP account for that matter, by 20%. This means that as a parent or legal guardian, you only have to contribute £2,880 to max out on your annual allowance, and the government will add £720 to complete it to £3,600.
If you invested £2,880 every year until the child reaches the age of 18, it could be worth an estimated £420,310 by the time your child reaches the age of 60 with an average return rate of 5%.
Junior SIPP investment options & ideas
A SIPP essentially functions as a wrapper for investments (incidentally called tax wrappers). The idea is that you can fund your account, and make investments in various financial products, from stocks and shares to funds, ETFs, or bonds, and earn money through capital appreciation.
Additionally, many junior SIPP providers, and all of them on our list, allow savers to earn interest on cash – albeit offering much lower interest rates compared to regular savings accounts.
Here’s a breakdown of the most common investment vehicles as well as their risk exposures and average returns.
Risk Exposure | Average Returns | |
|---|---|---|
Stocks | High | 8-10% |
Mutual funds | Medium to high | 4-10% |
Index funds | Medium | 4-10% |
Bonds | Low to medium | 1-5% |
ETFs | Medium to high | 4-10% |
Cash and cash equivalents | Low | 1-2% |
Many that invest through a SIPP seek low-risk, long-term investment opportunities – for which index funds make an excellent choice. Index funds track a specific market benchmark, or “index”, such as the largest 500 US companies per market cap (S&P500).
What makes index funds such a safe haven for investors is that these funds try to be the market. When you invest in an index fund, you essentially trust that the market as a whole will grow, rather than a specific company.
Varying rates of growth
According to a recent report, it costs about £157,562 to raise a child from the cradle until they turn 18. They might be little bundles of sunshine, but they sure are costly – naturally, not all of us can create £2,880 out of thin air every year.
Yet, even a more modest amount of £1,200 per year yields some pretty great results when started early. To illustrate, we’ll take a moderate rate of 5% as the average return rate again – here’s how projected returns can look:
Child’s Age | Monthly Contribution (after government tax relief) | Annual Contribution | Total contribution (Until the child is 18) | Estimated Value at the Age of 60 | Estimated Growth by the Age of 60 | Tax Relief |
|---|---|---|---|---|---|---|
0 | £100 | £1,200 | £27,000 | £175,129 | £148,129 | £5,400 |
5 | £100 | £1,200 | £19,500 | £114,541 | £95,041 | £3,900 |
10 | £100 | £1,200 | £12,000 | £64,005 | £52,005 | £2,400 |
As shown above, the earlier you start a junior SIPP, the better. Even if your annual contributions don’t max out the allowance, setting aside £100 every month can provide your child with a significant head start. For comparison, the average pension pot in the UK for the 55-64 age bracket is £107,300.
Who can set up and make contributions to Junior SIPPs?
Parents and legal guardians can set up a junior SIPP for a child from the day they are born until they are 18. If the child is older than 16, they may have to give consent and be asked to sign the paperwork.
While only parents and legal guardians are allowed to open and manage a SIPP, anyone can make contributions; grandparents, cousins, family friends – you name it. One thing to keep in mind is to remain within the annual allowance of £2,800 (which amounts to a total of £3,600 with the 20% tax relief).
How do I pass a Junior SIPP on to my child?
What happens if my child withdraws early from their SIPP?
Finding the Best Junior SIPP
Finding the best junior SIPP provider will depend on your personal preferences, but there are a few points to consider when looking for one;
DIY, ready-made, or expert-managed?
How much would you like to be involved in the management of your child’s SIPP? If you are confident in your investment knowledge and experience, or alternatively only seek to drip feed into index funds, the DIY option may be the right choice for you. It’s also often the most cost-effective way.
Ready-made portfolios may incur additional charges, take Fidelity’s, for example. They are usually put together by investment professionals and are categorised by factors like risk exposure, preferred assets, and investment goals, such as growth or income.
Expert management is the costliest, yet safest option. You can opt for a service such as HL to have a financial advisor lead the way for you.
How much does it cost?
Be mindful of the charges, as they can compound the same way returns do. There are three main fees to be mindful of;
Annual custody charge for shares: This can be anywhere between 0.1% to 0.45%, and is usually capped annually. Charges tend to lower as the total amount of funds increases.
Annual custody charge for funds: This is usually the same as charges for shares, but is not usually capped. As index funds are likely to be your first stop, confirm these charges and deductions with your junior SIPP provider.
Investment fees: Also known as trading fees, these are charged anytime you make an investment (buy a share of a fund, for example). Most UK SIPP providers charge a flat fee, so it makes sense to save funds to make a lump sum payment in one go.
What is the market reach like?
This applies the most if you are a seasoned investor – you can, of course, invest in several index funds and follow a “buy-and-forget” strategy. But if you’re looking for more active management of your child’s pension, you should consider how vast your preferred platform’s market reach is.
FAQ
Are Junior SIPPs worth it?
What is the disadvantage of a junior SIPP?
What is the tax relief on a junior SIPP?
Additional Resources
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