Junior SIPP

Whether you’re a new parent, or you have kids who’ll soon be approaching their teenage years, it’s never too early to start thinking about setting your children up for a healthy financial future. One of the best ways to do this is through a Junior SIPP, but what does this involve? In this guide, we’ll be breaking down everything you need to know about this long-term investment option for children.


What is a Junior SIPP and how does it work?

A Junior SIPP is a type of self-invested personal pension designed for children under the age of 18. It works in the same way as a regular SIPP, where contributions are invested in various assets like stocks, shares, funds and bonds with the aim of building a long-term retirement fund for a child.

What are the benefits of a Junior SIPP for long-term financial planning for children?

One of the primary benefits is the potential for tax-free growth on investments, which can be a significant advantage over other savings and investment options for children. Junior SIPPs also offer a greater level of control and flexibility over investments than traditional savings accounts, allowing parents or guardians to tailor the portfolio to suit their child’s individual needs and goals.

They can also provide a valuable education for children on the importance of saving and investing for the future, encouraging a long-term savings habit from an early age. 

What are the tax implications?

Contributions are subject to the same tax relief as regular pensions. Parents or guardians can claim tax relief on contributions up to £2,880 per year, which is then topped up by 20% by the government, up to a maximum of £3,600 per year. Investment gains within a Junior SIPP are also tax-free.

What are the investment options available?

The investment options available for a Junior SIPP are similar to those available for a regular SIPP – the child’s pension contributions can be invested in a range of assets, giving parents or guardians the flexibility to create a diversified portfolio tailored to the child’s investment goals and risk tolerance.

What are the costs associated with setting up a Junior SIPP?

The associated costs will depend on the provider but also the chosen investments. Some providers may charge an initial set-up fee, an annual management fee, or transaction fees for buying and selling investments.

What is the minimum age requirement for opening a Junior SIPP, and what are the investment restrictions for parents or guardians?

The minimum age requirement for opening a Junior SIPP is birth, and contributions can be made by parents or guardians on the child’s behalf. Parents or guardians are responsible for managing the investments until the child reaches the age of 18, at which point the child can take over management of the account.

The investment restrictions for parents or guardians are minimal, with the main requirement being that the investments must be made with the sole purpose of building the child’s pension pot for retirement. There are, however, some restrictions on investing in certain types of assets, such as residential property and personal assets.

What is the maximum contribution limit?

The maximum contribution limit for a Junior SIPP is £3,600 per year, compared to £40,000 per year for a regular SIPP account. This limit is set to ensure that contributions to the child’s pension pot do not exceed their annual earnings, which are usually much lower than the annual earnings of an adult.

What are the differences between a Junior SIPP and a regular SIPP?

There are several key differences between a Junior SIPP and a regular SIPP that parents should consider when deciding which one is better for their child’s long-term financial planning.

  • Age limit: the key difference between the two is the age limit. A Junior SIPP is designed for individuals under the age of 18, while a regular SIPP is for those who are 18 years or older. This means that a Junior SIPP can be opened and managed by the child’s parent or legal guardian until the child turns 18, whereas a regular SIPP must be managed by the account holder themselves.
  • Contribution limit: the maximum contribution limit for a Junior SIPP is currently £3,600 per tax year, while a regular SIPP has a much higher limit of 100% of the individual’s annual earnings, up to a maximum of £40,000 per tax year. This means that a regular SIPP may be a better option for older individuals who are able to contribute more towards their retirement savings.
  • Investment options: Junior SIPPs typically have a more limited range of investment options compared to regular SIPPs, due to restrictions on investing in certain types of assets such as commercial property or overseas investments. However, Junior SIPPs may offer investment options specifically tailored to children, such as ethical or sustainable funds.
  • Withdrawals: Withdrawals from a Junior SIPP cannot be made until the child reaches the age of 55, compared to age 57 for regular SIPPs.

If you are looking to start building a nest egg for your child’s future and teach them the importance of saving and investing early on in life, a Junior SIPP may be the right choice. It’s important to seek advice from a financial advisor or planner to help you make an informed decision, but investing for your child early means that they’ll be set up for a bright financial future.