Should my father put money for his grandchildren in a Junior ISA or pension?
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13 August 2026
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My father wants to invest for his grandchildren. I want him to pay into a pension for them, so they can benefit from investment growth for as long as possible. He says he wants to invest in a way that means he’ll be around to see them enjoy it. Who is right?
Sharon
For the sake of family harmony, you’ll be pleased to hear that you’re both right. The Junior ISA would let your father fund tax efficient investments that can give his grandchildren the best possible start in adult life, while the Junior SIPP could transform their retirement prospects.
The Junior SIPP offers a double-whammy of tax-efficiency: he can put in up to £2,880 a year, and the government will top it up to £3,600 with tax relief. This applies despite the fact that most children don’t pay income tax. Growth is then tax free too.
In addition, it’s the ultimate way to take advantage of the power of compounding, because he’ll be getting growth on his growth for decades. If, for example, a child was born today and he paid in the maximum each year until their 18th birthday, the total going into the pot (including tax relief) would be £64,800. Assuming growth after charges of 5%, even if they didn’t pay in another penny for the rest of their life, by the age of 60, their pension pot could have grown to £420,310. It’s an incredible head start for their retirement savings.
No up-front tax relief with a Junior ISA
The Junior ISA, by comparison, grows tax free and can be withdrawn entirely free of tax. However, there’s no up-front tax relief, so if he was to pay in £2,880 a year for 18 years, the total going into the pot would be £51,840. By the time the Junior ISA matured at the age of 18, with tax free growth of 5% after charges, that pot could be worth £73,330.
The Junior ISA would also allow him to save a larger sum each year, with an annual allowance of £9,000 per child. If your father has this sort of sum to put aside each year for any grandchildren, it could grow into £229,158 by the age of 18, which is a life-changing sum of money.
It has the added advantage that at the age of 18, it rolls over into an adult ISA, and the grandchildren can access it at any time after that. Life is increasingly expensive for this generation, so there will be times throughout their lives that this money could prove a real lifeline. Being able to access this sort of nest egg can make a world of difference to everything from how they fund a potential university course to how they get onto the property ladder.
The money in a Junior ISA belongs to them at the age of 18 and they are free to use it in any way they choose. It means it’s important to talk to them about their investments as they go along, so they understand the potential good this money can do if invested and spent strategically.
There will be people who are concerned about this prospect. If so they want to invest in the name of the parent or grandparent, so they have more control over how the money is spent. If your father is weighing this up, he needs to consider the fact that if he wants to invest tax-efficiently, he will need to use some of his annual ISA allowance for this – which will restrict his ability to invest tax-efficiently for himself. He should also think about the potential for inheritance tax, if his estate is likely to bust the nil rate bands.
What are the inheritance tax considerations?
If he invests regularly in the child’s name, there’s a chance the gifts will fall into the £3,000 annual gifting allowance, or that it could leave his estate immediately if it falls under the rules covering regular gifts from income. If he’s giving bigger gifts, they will fall out of his estate after seven years from the date he hands them over.
However, if he decided to invest in his own name, and give it to them when they’re older, he will need to live for seven years after this for it not to be counted as part of his estate. This can be incredibly difficult to plan for and is why Junior ISAs and Junior SIPPs can be so valuable from an inheritance tax perspective.
In many cases, families will strike a balance, putting some money into a Junior ISA and some into a Junior SIPP. It offers the best of both worlds, so your father can see his grandchildren make the most of his gift as they enter adult life and still take comfort from the fact he’ll be doing the best thing for them after he has gone too.
Sarah Coles: Head of Personal Finance
Sarah Coles is AJ Bell’s Head of Personal Finance. She’s passionate about helping people get to grips with their money, so they have more freedom to do the things that really matter to them in...
