COMMENT
My Son The Millionaire

Even though my son can't yet add up, he's got the potential to become a millionaire.

Master P is two in June. And like most parents of young children, I've received a £250 child trust fund (CTF) voucher. And probably like most parents receiving a voucher, that's all I'll be putting into a CTF account.

You see, I have a big problem with CTFs; when my son turns 18, he gets all the money. Sure, I could teach Master P the benefits of long-term investing. Sure, I could teach him how to live below his means as well. But I know sudden windfalls tempt even the most dedicated of misers and there's no way I'm putting my cash into a scheme (the maximum CTF allowance is £1,200 per annum) and risk a hormone-fuelled teenager blow years of careful compounding on birds, booze and fast cars.

So here's my personal alternative for long-term child savings: the stakeholder pension. These can be opened in a child's name and contributions of up to £2,808 per annum can be made on their behalf. In addition, the government will throw in an additional £22 for every £78 payment. Read more.

Importantly for me, stakeholders only pay out their benefits when their owners reach 50 (or 55 after 2010). I'm sure my son will have discovered the true value of money by then. In the meantime, he'll have to learn the hard way by getting a job and saving up for his birds, booze and fast cars. He won't, however, have that many worries about providing for his retirement. This is the millionaire bit.

Say I contribute £78 a month into a stakeholder and the government tops it up to £100. By the time Master P turns 18 in 2021, his pension pot will be worth £41,509 using a 9% average annual return after charges. Assuming the same annual growth rate for the following 37 years -- and no further contributions -- the pot would grow into £1,006,752 by 2058. Granted, you can argue about future growth rates, inflation and so on, but £1m should still represent a large sum in the decades ahead.

I just hope I'm around when my son starts to enjoy it.

More: Learn about Saving For Children | Stakeholder Pensions | Try the Savings Calculator