Latto: Sipps could create a generation of millionaires
Parents could help their children retire as millionaires if they start contributing to a self-invested personal pension when they are born, Steve Latto of Alliance Trust Savings has said.
By contributing £83 a month or making an annual contribution of £960 to a child Sipp, Mr Latto said parents could give their children a pension pot worth more than £1m when they come to retire, provided contributions continue throughout adulthood.
This is largely because of government tax relief on pensions. For every £80 paid in to a child Sipp, the government will add a further £20 to the fund.
That means a contribution of £83 a month would be topped up with basic rate tax relief resulting in a gross contribution of £103.75 a month.
Mr Latto, head of pensions for Alliance Trust Savings, said contributing to a child Sipp was a good way for parents to secure their children’s long-term financial future, particularly given the demise of final salary pension schemes and increasing longevity.
According to the department for work and pensions, more than 10m people living today will reach the age of 100. Within that group, more than 3m are now under the age of 16.
Mr Latto said: “The focus of much saving is on short to medium-term needs, such as purchasing a first car, but for real long-term financial stability, parents could consider a child Sipp as an alternative way of providing long term security.
“It is unlikely children of today will benefit from the generous pensions provisions that were seen in the past from both the state and private employers. As such, parents should consider a child Sipp as a way of helping their children plan for a comfortable retirement.”
Additional payments from grandparents and other family members for birthdays and special occasions could also help boost the funds paid into a child Sipp.
Mr Latto added: “By kickstarting a child Sipp parents and grandparents can ensure that at retirement their child will have a pension pot of more than £1m. The Sipp wrapper provides the child with extensive investment choice sufficient to meet investment needs throughout their lifetime.”
Steven Robinson, managing director of Bristol-based Clarke Robinson & Co, said: “Starting a Sipp for your child is a good idea, provided contributions continue and the management fees are low.
“However, because the funds are small, parents would be far better off with a personal pension than a Sipp, as they are lower cost. The funds can always be transferred to a Sipp later on if need be.”
