What do you give a grandchild for Christmas that will never wear out but will grow in value and could last all their life? A pension! Many people are surprised that you can give a pension to a child or even a newborn baby. But there are more than 45,000 of these Junior Self-Invested Personal Pensions (SIPP) and around £80 million a year goes into them. A JSIPP must be opened by a parent or legal guardian but then anyone can pay into it. And for every £100 added, the Government chips in another £25 this tax year. That is the basic-rate tax relief that everyone gets and is paid even though the child does not pay tax.

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There is a limit to the generosity: the total in contributions and tax relief going into the pension pot cannot exceed £3,600 in the tax year. With basic rate at 20%, that means you can pay in up to £2,880 with HMRC chipping in another £720. If the basic rate changes, those figures may change, but the essence is unlikely to be amended.

At age 18 the new adult will take ownership of the pension, but they won’t be able to use the money until at least 57 – from April 2028 that will be the youngest age to access a pension (and may rise further in future). That means there could be nearly 60 years of compound[1]interest magic to make your gift grow. If you put that first £125 into a simple fund that follows the well-known FTSE 100 index of our biggest companies, it would grow to £2,650 after 50 years, assuming total growth of 6.3% a year, the average for this century so far.

Even after the inevitable charges, your £100 Christmas gift could have grown to £2,000 or more. And if you put in the maximum every year from birth to 18, it could reach £1 million in your child’s 50s.

Seek independent financial advice about investing, and always demand the lowest charges so you share as little as possible of your gift with the financial industry!

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