My Son The Millionaire

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

Master P is now three. And like most parents of young children, I've received a child trust fund (CTF) voucher. And probably like most parents, that's all I'll be putting into a CTF account. I told you last year that I had a big problem with CTFs - the child gets all the money when he or she turns 18. And there's no way I'm putting my cash into a scheme and risk a teenage son 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.

Importantly for me, stakeholders only pay out their benefits when their owners reach 50 (or 55 after 2010). I'm hoping I'll have taught my son the true value of money by then. In the meantime, he'll have to earn his own money to fund the birds, booze and fast cars. He won't, however, have that many worries about providing for his retirement. This is the millionaire bit.

I've started contributing £100 a month into my son's stakeholder and the government tops it up to £128. The scheme has had a good first year. With the tracker fund improving about 25%, thirteen contributions (£1,300 plus £367 tax rebate) to date have earned a decent £213 gain. By the time Master P turns 18 in 2021, I reckon his pension pot could be worth £54,194 using a 9% average annual return before inflation but after charges (for comparison, the market's average long-term return is 11% a year).

Assuming the same 9% annual growth rate for the following 37 years -- and no further contributions -- the pot would grow into £1,314,412 by 2058. Granted, you can argue once again about future growth rates, the effect of 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 | Learn more about compound interest