Child SIPPs are ten years old. And an item in the weekend press celebrated this by asking fund platform Alliance Trust Savings to dig into its records to find out how these pension plans had performed.
The conclusion made interesting reading -- very, very interesting reading indeed.
Put £2,880 a year into a child SIPP -- the maximum allowed -- and the government will then add a further £720 by way of 20% basic rate tax relief, for a total investment of £3600 a year. After ten years, logically enough, you'll have amassed total contributions of £36,000.
Not a bad sum for any 10-year old. And that's before investment returns, of course.
According to Alliance Trust Savings, some of the child SIPP accounts on its books had grown to over £70,000 -- equivalent to an annual return of 12%, assuming twelve even monthly contributions through the year.
That's pretty good going, and as the article pointed out, it compares very favourably with the average worker's personal pension pot -- about three times higher, in fact.
But it's not a stellar return. Especially considering some of the heady rises in oil, gas, metals and other commodity shares over the period.
Plunk some of those contributions into some of the better-performing shares over that decade, and you could expect a rather higher return.
Enter the Fool
There are several very good SIPP platforms on the market, but many Motley Fool readers use A.J. Bell's Sippdeal service -- either directly, or via the Fool's own SIPP offering, which is provided by Sippdeal under licence.
So I wondered if Sippdeal investors could beat the performance of Alliance Trust Savings investors. How large, in short, have child SIPPs grown at Sippdeal?
And the answer, it turned out, was a fair bit higher.
In fact, according to Gareth James, technical marketing manager at A.J. Bell, Sippdeal has a number of accounts where the value "is already comfortably into six figures."
But how far, exactly, into six figures? The answer surprised me.
"Of those child SIPPs worth more than £100,000, the majority are valued at less than £200,000 -- but there are examples above that amount," he told me. Crikey. £200,000 at aged ten.
In short, that equates to a performance of just over 28% a year -- year in, year out, for a decade.
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Frankly, a 10-year old with a pension pot of £200,000 is pretty much set up for life.
Let's assume that contributions continue until the child is 18, but that investment performance drops to a long term FTSE All-Share average of 7%, a long way below the 28% clocked up to date. At 18, the child then has a pension pot of £388,249.
Let's also assume that he or she makes no further pension contributions -- ever, because frankly they don't need to -- and just let their pot grow at 7% a year.
The result? At 55, pension fund of £4,745,807.
All without making a penny contribution of their own. Fanciful? Unrealistic?
I don't think so: bear in mind that the starting point -- 10-year olds with pension pots of £200,000 -- already exist. They're real, and sitting in primary school classes right now, as you read these words. After that, the rest is simply average returns.
And frankly, I suspect they'll do rather better than average. Let's face it, with a pension pot that size, and almost four decades to go until retirement, they can afford to take a few risks.
The luckiest children alive? I think so -- but what do you think? Answers in the box below, please.
> Malcolm has a SIPP with Alliance Trust Saving -- and is wondering if he ought to move to Sippdeal.
For long-term investors, the best defence is a good offence. Never mind what the overall market is doing -- position your portfolio correctly and you could protect your investments for the long term.