We take a look at the similarities and differences between Junior Self-Invested Personal Pensions (Junior SIPP) and Junior ISAs. They were both launched in 2011 when the Child Trust Funds came to an end but is that the only thing they have in common?
What is a Junior SIPP?
A Junior SIPP is a tax-efficient way for a parent or legal guardian to set up a pension for a child to save for their future requirement. The adult controls the specific investments that make up the pension fund until the child turns 18. At this point the account matures into an adult SIPP and the child is then in charge of the portfolio. However, the child cannot access the fund until they reach the minimum UK pension age, which is currently 55 but due to rise to 57 in 2028.
Money in Junior SIPPs is free of capital gains tax and income tax. They have a yearly contribution limit of £3,600 which includes a basic tax relief of 20% added by the government, meaning you only need to contribute £2,880 in a tax year to hit the limit.
What are similarities between Junior SIPPs and Junior ISAs?
There are a few ways that Junior SIPPs and Junior ISAs are similar:
- Both are essentially ways to save and invest for your child’s future in a tax efficient way. Some parents decide to open both so their child will have access to funds at 18 in the ISA and then again at pension age with the SIPP.
- Both can only be opened by a parent or legal guardian but can be contributed to by other people, so grandparents and other family and friends are able to save and invest too.
- Both become the child’s responsibility at 18, which means before then they’re in control of the parent or guardian but once the child turns 18 the control of the account transfers to them and it is now the adult version of the product.
- Both accounts cannot be withdrawn from and are locked away, so you need to make sure any money contributed is money you won’t need access to.
What are the differences between Junior SIPPs and Junior ISAs?
There are also quite a few ways that Junior SIPPs and Junior ISAs differ:
- The type of products are different, a Junior ISA is a type of long-term savings account whereas a Junior SIPP is a pension.
- Junior SIPPs are only an investment product whereas a Junior ISA has both cash and investment versions of the account.
- The limit you can contribute in a tax year differs, in 2024/25 the Junior SIPP limit is £2,880 (plus the 20% tax relief from the government). The allowance for a Junior ISA is £9,000.
- As mentioned earlier, the age the funds can be accessed is very different, with a Junior SIPP it’s the minimum UK pension age, which is currently 55, and with a Junior ISA it’s 18.
We hope this article gives you a basic introduction to Junior SIPPs and some of the similarities and differences with Junior ISAs. If you’d like to find out more about Junior ISAs you can download our free JISA Guide. You can find out more about Junior SIPPs here.