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The making of a millionaire

Published: 29 September 2016

According to our latest research, parents investing in a Junior ISA (JISA) today for their baby could help him or her become a millionaire by their 43rd birthday.

According to our latest research, parents investing in a Junior ISA (JISA) today for their baby could help him or her become a millionaire by their 43rd birthday.

By contributing the current maximum allowance of £340 per month into a Junior ISA from birth and continuing to pay the current maximum of £1,270 per month into adult ISAs, the investment pot could be worth more than £1 million by time the child is 42 years and seven months.

And if the adult ISA allowance increases to £20,000 in 2017, as announced in the last Budget, today’s new-borns could become ISA millionaires five years earlier - by the age of 38. What’s more, if the child continued saving until age 65 they could have an investment pot worth nearly £3 million at current maximum contribution levels, or almost £3.75 million with the £20,000 contribution limit.

If in addition to a JISA, parents paid into a Child SIPP from birth with maximum contributions of £300 per month including 20 per cent tax relief, millionaire status could be achieved by 36 years and 3 months at current limits. Using the £20,000 ISA limit and the same SIPP contributions, the child could hit the magic million at age 33 and 3 months.

Sara Wilson, Head of Platform Proposition at Alliance Trust Savings, comments: “Many parents save regularly for their children’s future and, with extra contributions from grandparents, friends and relatives, the money can quickly build up. However, at current low interest rates, money held in cash accounts has less potential for long term growth than if it is invested in the stockmarket.

“By investing in the Alliance Trust Junior ISA from birth, by the age of 18 your child could have a pot worth £106,000 at current levels and if contributions continued, by the age of 65, they could have amassed nearly £3 million in ISAs at current limits. By investing in SIPPs as well from birth, the combined pot could be worth £5.5 million by age 65 at current limits, which could make a serious difference to your child’s quality of life in retirement.”

Millionaire age Total investments
age 18
Total investments
age 65
JISA & ISA (£15,240 annual limit) 42 years, 7 months £106,608 £2,998,273
JISA & ISA (£20,000 annual limit) 38 years £106,608 £3,721,084
JISA & ISA (£15,240 annual limit) + Child SIPP & SIPP 36 years, 3 months £231,133 £4,780,379
JISA & ISA (£20,000 annual limit) + Child SIPP & SIPP 33 years, 3 months £241,050 £5,503,190

  • The ISA calculations use current maximum ISA contributions: £340 per month until age 18 years old, and £1,270 per month from 18 years old. In addition lump sum contributions of £30,480 (current ISA limits) and £40,000 (proposed ISA limits) have been added after age 18, as an adult cash ISA can be held in addition to a Junior ISA between ages 16 and 18.
  • The SIPP calculations use contributions of £300 per month (which equals the contribution limit for Child SIPPs of £3600 including tax relief).
  • The Alliance Trust Savings calculations use the platform’s current monthly ISA product charges of £3.33 until age 18 and £7.50 after 18 years old and current monthly SIPP product changes including VAT of £7.98 until age 18 and £18 after 18 years old.
  • The average percentage fee platform calculations use a monthly platform fee of 0.35% for both ISAs and SIPPs across all ages, which platform consultancy the lang cat estimates to be an average platform charge.
  • An investment charge of 1% and annual growth rate of 5% is assumed in all cases.

Important information

  • The examples given are for illustration only. Investment returns are not guaranteed. Investments can go down as well as up and you may get back less than you originally invested.
Cost of raising a child

Important information

These articles are designed to help investors make their own investment decisions. They do not constitute a personal recommendation to invest. If you have any doubts as to their suitability you should seek expert advice. Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.

Your existing pension may have valuable benefits which you might lose when you transfer.

Laws and tax rules may change in the future without notice. The information here is our understanding in August 2016.This information takes no account of your personal circumstances which may have an impact on tax treatment.

Past performance is not a guide to future performance.

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Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.