It’s possible for a parent to open a Self-Invested Personal Pension (SIPP) on behalf of their child. It will remain under their control until their offspring reaches the age of 18. At this point, it’s no longer classified as a Junior SIPP.
Hargreaves Lansdown has a useful calculator on its website, which assumes an annual growth rate of 5% and yearly fees of 1%. This demonstrates that investing £300 a month (including £50 of tax relief) — the maximum allowed for the first 18 years — and continuing this for a further 47 years, would result in a pension pot of £581,240 at 65.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Starting to invest when still in nappies is likely to be an effective strategy. After all, Warren Buffett, possibly the world’s most famous investor, didn’t start until he was 11. Having said that, he’s still going at the age of 95.
If we didn’t invest any more in our hypothetical SIPP of £581,240, and left it for another 30 years, it would grow to just over £1.25m by the time someone was in their mid-90s. Not as much as Buffett’s fortune — estimated to be $150bn — but still an impressive sum.
However, finding £300 a month isn’t always easy. That’s why I think the best advice is to invest as much as you can for as long as possible.
Possible options
So what might make a suitable investment for a child to consider? McDonald’s or Coca-Cola could be popular. Then there’s Disney. Older ones might prefer Apple or Sony.
But if I had to choose one stock and hold it for 65 years, I’d consider National Grid (LSE:NG.), the FTSE 100 electricity, natural gas and clean energy delivery company. A youngster would probably say it’s a little boring. But that’s the point. It’s the sort of stock that you could consider tucking away in a SIPP and forgetting about.
In all of its key markets, National Grid has a monopoly. But this has pros and cons. The good news is that the group doesn’t need to spend much time finding new customers. Instead, as a regulated business, it must focus on keeping the lights on and homes heated. Otherwise, it’s likely to be sanctioned.
But as long as it meets its obligations, it will know with reasonable certainty how much money it will make. In turn, with visibility over its future cash flow, it should be able to pay a steadily increasing and reliable dividend. Based on amounts paid in respect of its 31 March financial year (FY25), the stock’s presently yielding 4.1%. Of course, payouts are never guaranteed.
Unfortunately, assets in the energy industry can be expensive. Indeed, the group surprised investors in May 2024 when it asked shareholders for £7bn to help fund its five-year capital investment programme.
But the group’s stock market valuation has bounced back strongly since. In addition, it’s aiming to grow earnings per share by 6%-8% a year through until FY29. It’s also seeking to raise its dividend in line with inflation. And although its share price is unlikely to see spectacular growth, I think the stock’s defensive qualities are appealing given the uncertain times in which we live.
That’s why I think it could be one to consider for inclusion in a SIPP.
