First things first, good luck to you both with your impending arrival. We all want to give our children the best start possible and it is certainly good to see people being aware of the power of long-term compounding in maximising investment returns.
Prime among these is affordability. Young children often coincide with the early years of home ownership and couples will generally have extended themselves in repayment capacity to secure the mortgage required. Nappies and childcare to name but two of the costs incurred with young children impose a significant additional cost burden. The last thing you want to do is commit to a long-term savings plan only to find out that you are creating a financial black hole for yourself.
The idea of a Junior Sipp is that it is controlled by the parent but open to contributions form anyone with total contributions capped at £3,600 a year including tax relief at 20 per cent. At the age of 18, control passes to the child in whose name it was opened but they cannot access the money until a pension age in the mid-50s unless they want to incur a swingeing 55 per cent tax charge.
The same issue applies for ordinary bank accounts, as my colleague Fiona Reddan reported recently. People are attracted by the higher returns on offer at banks across the Border in Northern Ireland but, according to AIB anyway, that is no longer possible. And that’s not down to the Irish Revenue Commissioners but rather down to Brexit.
You can also consider a discretionary trust where the trustee has much more control over how the funds are invested and when they can be accessed by the beneficiary . However, they are more complex, can be less advantageous in gift tax terms and generally once the intended beneficiary turns 21, are subject to a once off 6 per cent levy and subsequent 1 per cent annual levies.