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As a parent, I want to give my daughter every possible advantage for her future. That’s why I decided to open a Junior Self-Invested Personal Pension (SIPP) for her now. That’s despite her retirement being five decades away.
The reason’s simple. The earlier you start investing, the more powerful the effect of compound interest becomes. And the more likely she is to achieve true financial security in later life.
A Junior SIPP allows me to contribute up to £2,880 a year. And with government tax relief, it becomes £3,600 — a 20% boost before the money’s even invested. By starting with her current balance of £3,500 and contributing £3,600 a year, or £300 a month, she’ll benefit from both these tax advantages and the long-term growth potential of the stock market.
Looking at the numbers
Let’s look at the numbers. Assuming an average annual return of 10% — a figure that reflects long-term stock market averages and is achievable with a diversified investment approach —her pension pot could reach over £8m in 50 years (she’d be 51). This projection includes modest annual increases in contributions. I’ve added this due to the likelihood that she’ll be able to pay in more once she starts working herself.
The power of compounding means that the money invested in her early years works hardest, growing exponentially over decades. For example, after 10 years, her pot could already exceed £80,000, and by year 25, it could be over half a million. By year 50, with continued contributions and growth, the total could surpass £8m, providing her with a level of financial independence that few can imagine.
However, starting a SIPP for my daughter is about more than just numbers. It’s about giving her a head start, teaching her the value of long-term investing, and ensuring she has choices and security in the future. In a world where retirement provision is increasingly an individual responsibility, I believe this is one of the best gifts I can give her.
A stock for the job
Scottish Mortgage Investment Trust (LSE:SMT) is a core holding in my daughter’s SIPP. It’s an investment trust with a long-term focus on high-growth, innovative companies across technology, healthcare, and other transformative sectors.
Despite recent volatility, the trust’s strategy of backing world-changing businesses has delivered outsized returns over time. Its managers have a proven track record of identifying winners, and the trust’s diversified approach helps spread risk across dozens of companies. Currently, the portfolio’s top holdings include SpaceX, MercardoLibre and Amazon.
One risk to highlight is Scottish Mortgage’s use of gearing (borrowings to invest). This amplifies both gains and losses, making the trust more volatile than traditional funds. This, combined with its concentration in fast-growing but sometimes unproven businesses, means short-term swings are inevitable.
However, for patient investors with a long-time horizon, Scottish Mortgage is certainly worthy of consideration. It’s diversified while broadly focusing on technology-driven investments, and I believe it will continue to drive strong growth in her SIPP.
