A MONEY expert explained how you can give your children a pension pot of £ 2.1 million by saving £ 7.90 a day for their first 10 years.
Parents can retire their offspring by setting up a so-called Junior Self-Invested Personal Pension (SIPP) when they are born.
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Parents can give their parents a £ 2.1 million pension fund by saving £ 8 a day for the first yearCredit: Alamy
The account can save up to £ 2,880 tax free each year. The government then increases it by 25% and converts it to £ 3,600.
This equates to £ 7.90 per day or almost £ 245 in a 31 day month.
If you leave that money to gain in value, the sum could be worth £ 2.1 million by the time your children turn 65.
This is based on the return on investment of a normal index tracker fund, which typically increases by an average of 7% per year.
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Former financial advisor Alex Steadman shared the tip on TikTokPhoto credit: TikTok / Thatpersonalfinanceguy
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The tip is a great example of how an early start can boost your pot with compound interest while making the most of what the government has to offer
Of course, not all households can save £ 8 a day for their children.
However, the tip is a great example of how an early start can boost your pot with compound interest while making the most of what the government has to offer.
Former financial advisor Alex Steadman shared the tip on his TikTok channel called “That Personal Finance Guy”.
He said, “Did you know that children can have a pension? They qualify for it from the day they are born.
What is a Junior SIPP?
A JUNIOR Self-Invested Personal Pension (SIPP) could give your children a head start in saving for their older years.
The Junior SIPP is the same as a regular SIPP – the difference is that a parent or legal guardian manages the account.
It also makes all investment decisions until your child turns 18.
The money in a SIPP cannot currently be accessed until the age of 55, but it will increase to 57 in 2028.
If you’re looking to open a Junior SIPP, keep in mind that your provider will usually charge a fee to manage your investments that will affect the returns you get.
Important investment platforms such as AJ Bell, Fidelity and Hargreaves Lansdown offer junior SIPPs.
“Well, that might not seem like a big deal, but the really good thing is that the government will give you 25% on top of what you’ve invested in a maximum of £ 2,880.”
“So I did a little bit of math, and if you’re investing £ 2,880 a year for the first 10 years of your life just in a regular index tracker fund – that’s 7% a year on average.
“In the end, when it comes to retirement, they’ll have £ 2.1 million.”
Mr Steadman, who is now a data scientist but shares money tips for TikTok, told The Sun that he has set the retirement age for his calculations at 65.
Meanwhile, AJ Bell said the pot could actually be worth £ 2.5 million by the time your child turns 66, which is the current retirement age.
It should be noted, however, that the state pension for a baby born today is likely to be even higher, as it is expected to rise to 67 from 2028.
You also need to consider the impact of inflation as a 2% annual rate would mean the pot is only worth £ 767,000 in real terms by the age of 66.
Also, keep in mind that the investment can go down as well as up so you can actually lose the money.
How do I start investing?
Before investing, you need to be aware of the risks as what you save can go down as well as up unlike cash.
This means you have less left than you started.
And if your investment does badly, you won’t be protected from losses with the Financial Services Compensation Scheme (FSCS), which covers cash up to £ 85,000 per financial institution.
If the company you invested in is regulated in the UK, you may still be able to use the FSCS to make claims if the company itself fails.
There are, of course, ways to reduce investment risk. For example, you can invest in cheaper so-called “passive funds” that track the assets of various stock markets such as the FTSE100 or FTSE All Share indices.
Investing in actively managed funds that group different types of investments is also less risky than investing in individual companies called stocks. This is because you are spreading your risk across a number of companies or other types of investments such as bonds or real estate.
Robo-investing – where a computer determines what to invest in based on a questionnaire of your preferences – is also less risky because it distributes your investments.
When you feel confident, you can start investing by setting up an account on an investment platform – a kind of supermarket with various investment products. And you can do all of this in a Stocks and Shares or Lifetime Isa wrapper. First, check the fees – both for the platform and for the individual investments themselves.
If you are unsure, you should always seek professional advice. You can use the comparison services Unbias or VouchedFor to find a suitable financial advisor.
Tom Selby, senior analyst at AJ Bell, said, “This shows the power to save early for your children and make the most of the free money offered by retirement tax breaks.”
While Sarah Coles, personal financial analyst at Hargreaves Lansdown added, “One thing to consider when saving into a SIPP for your child is that they can’t dive into the pot until they reach retirement age – this means they won’t be a first car gives.” , no tuition fees, no deposit.
“If you’re still looking to put money in tax-efficient packaging but don’t like the thought of locking it up for so long, consider a junior ISA.
“Your child can spend their savings from their 18th birthday and their pot is still tax-protected – they just don’t get any tax breaks on top of what you pay for.”
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We’ll explain other ways you can make your child a millionaire by the age of 65.
We’ll also show you how you can retire a millionaire by investing £ 78 a month.
The Sun has already shown how you can give your child £ 18,000 on their 18th birthday by saving just £ 1.67 a day.
Teen turned £ 200 to £ 200,000 a year after learning about stocks on YouTube
