With the future of the UK’s State Pension looking increasingly uncertain, many parents are worried about what retirement will look like for their children. Will the State Pension age keep rising? Will the benefit itself be enough to live on? These are real concerns. And they’re some of the reasons I feel validated for starting a Self-Invested Personal Pension (SIPP) for my daughter shortly after she was born. I did this through my brokerage, Hargreaves Lansdown.
Why start a SIPP so young?
A SIPP isn’t just for adults. Anyone can open one for their child, and the benefits of doing so are extraordinary. The biggest advantage is time. When you start investing at birth, you give compounding decades to work its magic.
The power of compounding
Let’s break down what this looks like in practice. I contribute £240 a month to my daughter’s SIPP. Thanks to government tax relief, that becomes £300 a month. This is currently the maximum for contribution for juniors.
However, for the sake of this calculation I’ve increased this contribution by 2% each year, assuming she’ll contribute more as she starts work. For growth, I use a 10% annualised return. This is lower than my typical return, but may be high for some investors.
Here’s what happens over 55 years.
| Year | Total Deposits | Accrued Interest | Balance |
|---|---|---|---|
| 1 | £3,600 | £169 | £3,769 |
| 10 | £39,418 | £26,797 | £66,216 |
| 20 | £87,469 | £172,497 | £259,966 |
| 30 | £146,043 | £656,092 | £802,135 |
| 40 | £217,445 | £2,073,912 | £2,291,358 |
| 50 | £304,484 | £6,044,528 | £6,349,012 |
| 55 | £354,909 | £10,156,001 | £10,510,910 |
What does this mean?
By starting early, even modest monthly contributions can in theory snowball into a multi-million-pound pension. Over 55 years, just £354,909 in total contributions could grow to over £10m, thanks to the relentless force of compounding. It’s not guaranteed though, of course.
The State Pension may be uncertain, but the power of starting early and letting investments grow isn’t. A SIPP for a child could be the most valuable gift you ever give. And it’s never too early to start.
Where to invest?
Because I’m contributing relatively small figures, albeit the maximum for juniors, and my brokerage charges sizeable fees, I’m starting my investing in a relatively small number of trusts, funds, and a couple of high-conviction stocks.
One investment is Berkshire Hathaway (NYSE:BRK.B). It stands out for its exceptional long-term performance. It has delivered an average annual return of 19.9% since 1965 — that’s nearly double the S&P 500’s return over the same period. This track record reflects disciplined investing and a focus on high-quality businesses.
The company’s strength lies in its diversified portfolio, spanning insurance, railroads, energy, manufacturing, and major equity stakes in companies like Apple and Coca-Cola. This broad base provides resilience across market cycles. However, it’s important to note that Berkshire remains heavily US-focused, with most assets and revenues tied to the American economy.
A key risk however, is this domestic concentration, which makes the business sensitive to US economic shifts. Additionally, leadership transition after Warren Buffett is a potential concern for future performance.
Nonetheless, I was confident enough to make it a core part of my daughter’s SIPP. It’s definitely worth considering.
