Junior SIPP pensions for children could grow to millions by retirement Parents are setting up Junior SIPP pensions for children, with £2,880 annual contributions boosted by tax relief and compounding that could grow to millions by retirement. Junior SIPP pensions are being set up for children as young as three and five, with contributions of up to £2,880 a year, as parents and grandparents look to harness decades of compounding and reduce inheritance tax liabilities. Ruth Jackson-Kirby has opened Self-Invested Personal Pensions for her son Henry, five, who has just started his second year at primary school and will not retire until roughly 2088, and her daughter Evelyn, three. The contributions are paid by the children's grandmother, Judy Catterall, 71. A pension might not be the most obvious present, but it could turn out to be one of the most valuable, according to Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown. She said it gives a young relative a serious head start on the retirement ladder and a lesson in just how powerful long-term investing can be.How Junior SIPP pensions workAnyone can open a pension, known as a Self-Invested Personal Pension, for a child. There is no minimum age, but if it is for someone under 18 then it is called a Junior SIPP. Children benefit from the same tax relief as adults.Pension contributions receive a basic-rate tax refund, meaning the Government adds 20 per cent to what you pay in, up to a limit of £2,880 a year. That means every £2,880 paid in is instantly topped up to £3,600 thanks to tax relief. If the maximum is paid in every year, the children will have already gained over £10,000 in tax relief by the time they are 18.The drawback is that this is seriously long-term investing. The age at which pensions can be accessed rises from 55 to 57 from 2028, but could increase further in the decades to come. So this money will not be of use for Henry and Evelyn's university fees or to help them buy their first homes. Most people resist drawing from pensions for years after they are entitled to do so.Long-term growth projectionsThe benefit is that there are decades for the nest eggs to grow and benefit from the power of compounding. Say a pension is set up for a newborn and £2,880, an average of £240 a month, is paid in every year until they turn 18.If the pot grows by a modest 5 per cent a year, they will have £102,000 by the time they turn 18, according to calculations by Hargreaves Lansdown. If that sum is then left until they are age 68, it would be worth £1.2million without another penny being added. If it grows at 8 per cent, it would be worth £140,000 at age 18 and an impressive £7million at 68. Even after inflation that would be a decent sum for retirement, likely enough even if no further contributions are made.Henry and Evelyn will not have quite that much because saving did not start the minute they were born, but their pots should be worth well over £1million if the family stays on track. That will not allow them to enjoy their retirement from a private yacht. £1million may sound impressive today, but it will be worth substantially less in the decades to come due to the ravages of inflation. But hopefully it will take away some of the stress from pension planning.Tax relief and inheritance tax benefitsWhile Ruth has set up the Junior SIPPs for her children, it is her mother who will be making the pension contributions. A parent or guardian has to open the account. Judy Catterall, 71, said inheritance tax is a big concern for her and many people she knows. She said paying into Henry and Evelyn's pensions feels like a simple way to give them a boost at a time when she is no longer around to help them, plus it has the added benefit of being tax efficient for all of them.You can give away up to £3,000 a year and it is immediately free from inheritance tax. On top of that you can give small gifts of up to £250 tax free. After that, anything you give away could have inheritance tax applied to it if you die within seven years of handing it over. However, there is another way to give money away free from inheritance tax that is becoming increasingly popular: gifts out of surplus income.Even small sums can add up. Maike Currie from PensionBee said you do not have to be a wealthy grandparent to make a meaningful difference. Just £50 a month from birth to 18, boosted by tax relief to around £63, could potentially grow to almost £159,000 by age 67, assuming 5 per cent annual investment growth after a 0.7 per cent annual management fee.On their 18th birthdays the pensions will transfer into adult SIPPs and belong to them, but they will not be able to access the money until they hit retirement age, whenever that may be.