The gift that keeps on giving

Whatever the explanation, Junior SIPPs represent a highly tax-efficient opportunity to give young people a headstart on retirement savings. It’s a gift that keeps on giving – potentially reducing the inheritance tax bill that children will eventually face, while allowing them to start building a potentially valuable nest egg for later life.

In the meantime, while your children or grandchildren are under the age of 18, you’ll be responsible for choosing the investments that sit inside their Junior SIPPs. And in this context, investment trusts have long been popular with families saving on behalf of children.

In times gone by, many investment trusts offered dedicated children’s savings services, enabling parents and grandparents to invest directly in their funds through regular contributions. Today, with most investors accessing funds through online platforms, families typically set up such arrangements via this channel, but investment trusts continue to be popular as the end investment.

There are good reasons for this. Investment trusts consistently outperform other types of funds, particularly over long-term periods – and you don’t get much more long term than retirement savings for children. Investment trusts also offer access to assets such as infrastructure, private equity and renewable energy, which can provide critical diversification in a retirement portfolio. Plus, they’re well suited to the discipline of regular savings.

Looking further ahead, an additional appeal of investment trusts is their excellent record on income generation – many trusts pay attractive dividends, including some with multi-year track records of increasing distributions. See Dividend Heroes for more details. That may prove very useful, when children eventually start to think about converting savings into income.

Involving children in the discussion about where and how to invest their Junior SIPP could be a useful exercise in financial education. But many kids are already more savvy than you may realise, with social media playing an increasing role in introducing young people to savings and investment topics.

Indeed, it’s interesting to note new research published by Invesco, which appears to show that savers who pay heed to “financial influencers” are more than twice as likely to hold investment trusts. Now, online financial advice needs to be treated with great caution – the Financial Conduct Authority is growing increasingly concerned about the impact of unregulated and often ill-informed influencers. But it’s fascinating that young people in particular seem to be engaging.

In this context, Junior SIPPs could be a huge opportunity for many families, with investment trusts playing a critical role for many. Getting kids into the savings habit early on is important – and every penny invested today will benefit from decades of compound interest.