Junior SIPP is the 20% added any use?
Discussion
CoolHands said:
Alright so you can add up to 2880 to child pension and gov too Uk to 3600 but is there any point if at the other end your child will be taxed 20%?
Is the only benefit that the 25% tax free part will be a genuine 20% better off? As it had 20% added but won’t have it removed
Isn't the benefit that you get the additional bit *now*, and then get to invest it for the next 60 years. i.e. it's the compound interest on the additional bit that is the real benefit not the tax saving at either end?Is the only benefit that the 25% tax free part will be a genuine 20% better off? As it had 20% added but won’t have it removed
i.e. if you shove the two amounts into a compound interest calculator assuming 7% growth which is historically about right (US). - Then in 60 years time, you get:
- 2880 now = 189727
- 3600 now = 237159
Yes, and sheltered from inheritance tax
I’ve set my kids up with a starting amount and will contribute for a while longer. It will serve as a reference point of what impact compound interest can have (on debt and savings).
Arguably it would make sense to put into your own pension, and then when you draw from your pension (25% of which being tax free) you recycle it into theirs..!
I’ve set my kids up with a starting amount and will contribute for a while longer. It will serve as a reference point of what impact compound interest can have (on debt and savings).
Arguably it would make sense to put into your own pension, and then when you draw from your pension (25% of which being tax free) you recycle it into theirs..!
Ive have a SIPP for as long as I can remember and my two children have a SIPP that I setup for them in 2008. I actually had my photo taken that was used in the HL investment times and interviewed as to why on earth someone would setup a SIPP for a 2 year old.
For me the tax reasons were beneficial, I’d max out my ISA, contribute to my work pension and then put as much as I could into my SIPP. I’m not wealthy enough to hit the maximum numbers but to see the extra being topped up by the government automatically and then doing a tax return to get the rest at 40% felt like free money. The fact that the government will give the first 20% to a non tax paying child seems like a good idea to me.
I’ve not really thought far ahead enough to consider the tax issues when my children want to get access to their SIPP. I’m certain the rules will changes, I’m certain tax levels will change, but to get a 50 year head start on savings in an uncertain future , I think, is a good idea. They’ve already had over a decade of compounded dividend reinvested income on their SIPP and their Child Trust Funds, one CTF actually matures in July when my first born hits 18 years old. Seeing an almost monthly income from UK and USA shares with high yields has bumped up the value of the accounts.
I believe the basic pension will either be stopped or reduced in the future, we’ve already seen reductions in NI % dropped twice this year and at least one UK party mentioned removing it all together. How on earth will the state pension be funded? Lots of variables and rules change to come but as my children enter the work force they’ll have enough issues affording housing, food, travel etc never mind contributing to a pension so I simply wanted to give them a head start.
There are other reasons why I started a SIPP.
For me the tax reasons were beneficial, I’d max out my ISA, contribute to my work pension and then put as much as I could into my SIPP. I’m not wealthy enough to hit the maximum numbers but to see the extra being topped up by the government automatically and then doing a tax return to get the rest at 40% felt like free money. The fact that the government will give the first 20% to a non tax paying child seems like a good idea to me.
I’ve not really thought far ahead enough to consider the tax issues when my children want to get access to their SIPP. I’m certain the rules will changes, I’m certain tax levels will change, but to get a 50 year head start on savings in an uncertain future , I think, is a good idea. They’ve already had over a decade of compounded dividend reinvested income on their SIPP and their Child Trust Funds, one CTF actually matures in July when my first born hits 18 years old. Seeing an almost monthly income from UK and USA shares with high yields has bumped up the value of the accounts.
I believe the basic pension will either be stopped or reduced in the future, we’ve already seen reductions in NI % dropped twice this year and at least one UK party mentioned removing it all together. How on earth will the state pension be funded? Lots of variables and rules change to come but as my children enter the work force they’ll have enough issues affording housing, food, travel etc never mind contributing to a pension so I simply wanted to give them a head start.
There are other reasons why I started a SIPP.
Edited by oldaudi on Wednesday 1st May 07:21
Exactly. But You cannot claim for the children that’s capped at 20% and Its automatically added by your broker (normally).
But if you’re in a different tax bracket you can claim more on your tax return for your SIPP
Over the years they’ve either adjusted my tax code so you can earn more before you get taxed or they simply pay it as a lump sum.
https://www.hl.co.uk/pensions/tax-relief/calculato...
But if you’re in a different tax bracket you can claim more on your tax return for your SIPP
Over the years they’ve either adjusted my tax code so you can earn more before you get taxed or they simply pay it as a lump sum.
https://www.hl.co.uk/pensions/tax-relief/calculato...
Edited by oldaudi on Wednesday 1st May 07:48
I opened a SIPP for both my kids when they were born and took advantge of the £720 annual top up, plus some smaller top ups on later years. The total investment isn't life changing right now, but with +50 years of compounded growth, my kids will have a decent amount to play with. However, I have ceased all contribution as life is too unpredictable, and since divorce is quite a common event, I can't be sure I am contributing just for my daughter..
Tim330 said:
If they retire prior to state pension age then they could use the SIPP for tax free income up to the 20% band.
But isn’t “retirement age” also regulated wrt taking any pension wrapper investments?Ie, in 40yrs retirement age might be nudged up to a much less attractive level?
Mr Whippy said:
Tim330 said:
If they retire prior to state pension age then they could use the SIPP for tax free income up to the 20% band.
But isn’t “retirement age” also regulated wrt taking any pension wrapper investments?Ie, in 40yrs retirement age might be nudged up to a much less attractive level?
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