The 10-Year Olds With £200,000 Pensions

Published in Investing on 17 May 2011

Are these the luckiest children alive?

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.

Solid growth

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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Silver spoon

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.

Hello, retirement

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.


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DIYIncome 17 May 2011 , 5:13pm

Yes - and this allowance is also available for a non-working spouse, non just children. The tax top-up actually represents an instant 25% return!

MonsterMixer 17 May 2011 , 7:03pm

"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."

Fabulous, where do I find this offer to just let my pension pot grow by 7% a year?

MDW1954 17 May 2011 , 7:26pm

Fabulous, where do I find this offer to just let my pension pot grow by 7% a year?

Hello MonsterMixer,

It's the long term return of the FTSE All-Share, after costs. So stick your pension pot in a tracker, in other words, and over the long term that's likely what you'll get.

Malcolm (author)

adjames 17 May 2011 , 7:28pm

7% per year - thats the average of the UK market over last 100 years so just put it in a tracker

MonsterMixer 17 May 2011 , 7:55pm

Oh right, and there was me thinking that past performance provides no guide to future performance!

My bad.

MoneyPower100 17 May 2011 , 8:17pm


Where can one find out more about the returns of the indexes eg. FTSE All-Share or S&P 500

Is it best to stick to the FTSE All-Share than a non-UK index?

Stemis3 18 May 2011 , 11:45am

Lets not of course forget the eroding power of inflation. At 3% inflation. £4,745,807 is actually worth £1,254,975 in today's money. At today's annuity rates that'll get you an equivalent inflation linked pension of about £45k. Not bad, but not quite the luckiest children alive.

StoneyBridge 18 May 2011 , 11:49am

Let's not forget that inflation will eat in your £4.5m pot at 55 meaning that you should probably review the contribution position. You should also consider ISAs (since you will be capped at £1.5m of tax relieved pension savings, plus any increases that may apply to the limit in future).

billyboy121 18 May 2011 , 12:11pm

Let's also not forget that these ten year olds won't be able to access this money for decades to come, so unless their parents are also able to support them financially until then, perhaps they'd prefer the money sooner...and if their parents are willing and able to do both, then they're pretty much the luckiest children alive, albeit maybe only in financial terms, in any case.

drillbit101 18 May 2011 , 12:36pm

Yes and these ten year olds may also exceed the lifetime allowance so have to pay punitive taxes before they get the money out...

TamPudden 18 May 2011 , 12:43pm

The lifetime allowance will have to go up or there will be intense lobbying by VIPs!

Yes, the children may want their money earlier - tough. But having said that I will be doing a Children's ISA for my child as well as the SIPP.

Luniversal 18 May 2011 , 1:13pm

However the kids got to two hundred grand, I bet it wasn't by buying Alliance Trust.

dunelmdunno 18 May 2011 , 1:54pm

Do these figures include the commission/fees taken out by the independent financial adviser? Not being as clued up at most of you, I have to depend on my FA with my childrens pension contributions

tophernator 18 May 2011 , 1:55pm

So we're really just giving up on the idea of independence all together? I'd not heard of child SIPPs before but they sound truly pointless.

The only people who can afford to start pension funds for their children are the wealthy, and the children of wealthy people don't need any extra help!

I'm not against child savings products in general. I can see how a child ISA, built-up over 18 years, could be used to pay ever increasing university fees or as a deposit on their first house. A child pension on the other hand is making provisions for their old age before you've even reached yours! Cut the apron strings FFS!

edwardmk 18 May 2011 , 2:54pm

If our national debt keeps increasing like it is, my prediction for the future is that at some time the government of the day will eye up all that pension fund money, and find a way to tax it, or just confiscate it, depending on the level of emergency they declare. Of course, if their under-reported inflation gets out of control, we could see Weimar Republic events, where suddenly £1M quid would buy you a loaf of bread as long as you get to the bakery quickly.

Blognorton 18 May 2011 , 3:12pm

What a pathetic load of whingers some of you above are. Out come all the prejudices and envy that feed the Labour Party, and drive readers of the Guardian to apoplexy. This is a lot better than Gordon Browns stupid scheme to hand a load of taxpayers cash to 18 year olds so they can binge it all away.

Having a scheme like this teaches something about deferred gratification, something that some bleaters above seem not to value at all. It also fosters an interest in saving for the future. If we all think like edwardmk then the result is that we will all live in a communist state with no property, or ability to do anything other than what the state tells us.

EGibbon 18 May 2011 , 4:03pm

Anyone can do the same. All it takes is many years of plain old-fashioned thrift and gratification denial. Compound interest is a wonderful thing.

TimberMadam 18 May 2011 , 9:06pm

I disagree that edwardmk is displaying a left-wing point of view but more that of someone who is financially unconvinced.

I on the other hand, as a left wing person, thoroughly support the need for personal fiscal responsibility. It is an essential component of a modern, successful market economy like ours - just as is confidence in our financial systems. The last Labour government was never in hoc to giving handouts to the unworthy - apart from bankers who crippled our economy. The failure of Blair/Brown was to continue Thatcherite free market economics beyond the point of prudence and to not realise that the 30 year free lunch would need paying for in the end, e.g. ridiculous house price inflation.

kazwy 18 May 2011 , 10:52pm

What happens if they die before they draw the pension, is the money lost?

msmoneywise2102 19 May 2011 , 9:18am

@blognorton and Co. I agree totally. Save and be thrifty, teach your kids to not expect instant gratification, teach them how to say no and mean it, and they will have the basic financial habits that keep them solvent all their lives. The 200K pension pot won't hurt either!

TimberMadam, the Labour party (which I was a member of until Tony and Gordon sickened me so much I joined the UKIP) regularly handed out money to scroungers, whingers and seditionists. Did you ever see the Muslim extremists protesting outside the Houses of Parliament, threatening to blow all law-abiding British citizens out of existence, warning that 9/11 was nothing compared to what was to come? Well, Brown's government supported these people by giving them state funded benefits, housing, education for their children... things that you and I as tax-paying and law-abiding citizens could never hope to get. Yet they hounded single parents who (according to their mis-calculations) had received too much Child Tax Credit or Working Tax Credit and drove some of them into bankruptcy. Hello, did anyone in the Labour Government twig that someone getting WORKING Tax Credit was working, at least!!! Unlike those no-goods protected by silly EU Human Rights laws, who treated our country like a free ticket to use and abuse. However, I don't think this coalition has the guts to send these people back to whichever bigoted nation they come from.

billyboy121 19 May 2011 , 11:07am

TamPudden said 'Yes, the children may want their money earlier - tough.' - sure, but I think you've missed the point here: if you want to support your children, then they probably need your support in their teens to thirties more than in retirement, when you're most likely dead and have left them everything in any case.

tophernator said 'Cut the apron strings FFS!' - nicely put, couldn't agree more.

Blognorton said ‘What a pathetic load of whingers some of you above are…Having a scheme like this teaches something about deferred gratification.’ - with respect, that is absolute nonsense. Telling your ten year old child that if they save that £x pocket money you've given them each week that in a few weeks they can buy a scooter will teach them that. Telling them that you've saved them £200k in a pension that they can't access for thirty or forty years will teach them nothing, it's so far away for them that it will be meaningless.

kazwy said 'What happens if they die before they draw the pension, is the money lost?' - now that is an excellent point. Presumably yes, if the rules then are the same now and they are compelled to buy an annuity. This, like most of the pensions concept, just seems to be a bit of a racket to support the financial services industry, ensure a flow of money into the stock market and provide work for brokerages.

supersol42 19 May 2011 , 11:46am

There is much to be said for letting one's children fend for themselves once they have fled the nest. Of course assistance can be offered in times of need, but money of itself does not bring happiness. Learning the value of money is always helpful, as is the principle of the work ethic.

Some of these kids are going to hit the maximum £1.5m before they leave school, which is faintly ridiculous; they will never have the pleasure of saving tax by making pension contributions.

Cats given too much cream are not healthy cats.

pansipotter 19 May 2011 , 1:12pm

msmoneywise2102 -

'silly EU Human Rights laws...'

'state funded benefits, housing, education for their children... things that you and I as tax-paying and law-abiding citizens could never hope to get...'

What on earth are you taliking about?

And you refer to bigoted nations!

mackeson29 20 May 2011 , 11:26am


A Russian term applied to permanently unfrozen ground in regions of permafrost; usually applies to a layer which lies above the permafrost but below the active layer, that is, when the permafrost table is deeper than the depth reached by winter freezing from the surface. Also known as tabetisol.

Are we to presume 'taliking' is a plural of this term ?

silverbuyer 22 May 2011 , 11:29am

It seems to be me that it is another scheme from the government wanting to take away our financial freedom.
1) Government spends more than they can collect legally.
2) Since early 2000, government has power to seize our asset under the terror act.
3) They never admit that a supply of money within UK economy has been increasing since 1971 more than the growth of our economy.
4) They never admit that the current way of calculating inflation is wrong and hence everyone is getting shafted from raising prices.
5) They say inflation occurs due to more demand... Inflation is the immediate effect when money supply increases more than the growth of economy. Price rises merely show the effect of inflation.
6) Our UK government is practically bankrupt.. Pension liability for all state workers, state pension(soon there are more pensioners than workers who can support them), NHS spending, etc.
7) According to the news from bullionvault, the bank of england, a private entity now since Tony Blair came into power, has bought 69% of all UK gilts. Effectively printing money.

Looking at all these facts, all private pension funds one day will be taxed so called Big society. What's yours is not yours, it's government's.

blackshares 22 May 2011 , 2:34pm

My understanding is the SIPP becomes part of the estate of the deceased if it has not been converted to an annuity.

BanzaiRun 23 May 2011 , 11:25am

Rather than the plural, wouldn't "taliking" be the act of maintaining an area of ground permanently frozen. Presumably using a Dr. Evil-esque freeze ray from a geostationary orbit.

mackeson29 23 May 2011 , 3:07pm

Yes, BanzaiRun, I think it would be ! Perhaps then we could refer to it also as a verb 'to talik' ?

jhon99 26 May 2011 , 9:20pm

this is an interesting idea. And its good way for people to help their kids.

BUT lets not call children with 200k in their pension pots "the luckiest children in the world"

After all their are some things money can't buy good health, love, parents. Children who have those are truly the luckiest in the world.

stamfordprivee 14 Oct 2011 , 2:08pm

Hope they will get the benefits out of it and they can be able to sustain their life well.Family Office

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