As a parent or grandparent, you’ve likely thought a great deal about how to help younger loved ones financially.
Initially, you may have thought about contributing to a regular savings account or gifting funds to help them get on the property ladder. Premium Bonds might also have come to mind, allowing them to potentially win a cash prize.
However, one method you may have overlooked is a children’s pension.
Using a Junior self-invested personal pension (SIPP) is becoming increasingly popular in the UK. According to MoneyWeek, pension contributions for under-18s rose to £79.6 million in the year to 5 April 2023, up from £75.9 million in the previous year.
Moreover, the number of young pension savers rose from 42,000 to 45,000 over the same period.
With Christmas just around the corner, now might be the ideal time to think about starting a Junior SIPP for your child or grandchild.
With that in mind, continue reading to discover exactly how children’s pensions work and why one could be the best gift you can give this Christmas.
A Junior SIPP allows you to save early for a child or grandchild’s retirement
You can typically start a Junior SIPP for anyone under 18. While they can officially take control of the fund when they turn 18, they usually won’t be able to access the funds until they reach the normal minimum pension age (NMPA). As of 2025/26, the NMPA stands at 55, although it is set to rise to 57 from April 2028.
Since your child likely doesn’t have any earnings, their Annual Allowance is £3,600. This means you can contribute to their pension on their behalf up to £2,880 while still benefiting from tax relief (more on this later).
Paying this amount on their behalf earlier rather than later could allow your child or grandchild to benefit from years of additional growth.
However, it’s important to note that, since a Junior SIPP is a pension, your younger loved one’s wealth will be tied up until they reach the NMPA.
This means they won’t be able to use the wealth to pay for higher education or purchase their first home.
As such, it’s essential to carefully weigh this against the benefits of a Junior SIPP.
There are several upsides to helping your child build a pension fund now
While children’s pensions might not be suitable for everyone, they do come with some potentially significant benefits. Here are three.
1. You could give your child or grandchild a head start on retirement saving
As you likely know, it can take years of saving to accumulate a significant fund to support a comfortable retirement.
For this reason, you might want to start saving for your child or grandchild as early as possible.
Standard Life reports that if you contribute £600 to a child’s pension each year from when they’re born until they turn 18, they could have built up a pot of £14,800 by the time they reach 22.
If they started earning a salary of £25,000 a year from age 22 and paid the minimum auto-enrolment contribution of 8% (5% from them and 3% from their employer), they could accumulate a fund of £193,000 by age 66, adjusted for inflation.
Better yet, when their wealth is invested for the long term, they benefit from “compounding returns”.
This allows them to generate returns on their initial investment and the gains accumulated over time. This snowballing effect can significantly boost their retirement savings.
2. Your child could benefit from tax relief on contributions
When you contribute to a pension on behalf of your child, these payments can benefit from tax relief.
Usually, any pension contributions will receive basic-rate tax relief from the government. As of 2025/26, this stands at 20%.
As such, a £100 contribution would only “cost” £80. Assuming they have no earnings, if you contribute the maximum amount of £2,880 in a single tax year, this becomes £3,600.
Over time, this additional boost can significantly bolster your child or grandchild’s retirement savings.
What’s more, £2,880 is below the gifting annual exemption of £3,000 in 2025/26, meaning this yearly contribution will remain outside of your estate for Inheritance Tax purposes, provided you haven’t made any other gifts under the same allowance.
If their annual earnings exceed £3,600, they will be subject to the normal Annual Allowance of £60,000, or 100% of their earnings, whichever is lower.
3. You could use it to impart some practical money lessons
The benefits of children’s pensions extend beyond just the financial. You could also use them to impart some practical money lessons by involving your child or grandchild in saving.
Indeed, you could tell them when you make a contribution, allowing you to discuss the importance of prioritising saving for their future self.
When they’re older, this could help them realise that making regular pension contributions as soon as they receive their salary, rather than at the end of the month, will help them reach their long-term goals.
You might also want to take this opportunity to teach your younger loved one how investments in pensions work.
Discussing topics such as risk versus reward, and the relationship between risk and return, could help them understand the benefits of investing for the future.
Get in touch
We could help you determine the best way to save for your child or grandchild’s future.
Please email us at info@investmentsense.co.uk or call 0115 933 8433 to find out more.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pensions Regulator.
