My Son The Millionaire

This four-year-old could enjoy £1m.

Even though my son has difficulty adding up, he's got the potential to become a millionaire.

Master P is now four. And like most parents of young children, I've received a child trust fund (CTF) voucher. And probably like most parents, that's all I'll be putting into a CTF account.

You see, my big problem with CTFs is that the child gets all the money when he or she turns 18. There's no way I'm putting my cash into a scheme and risk a teenage son blow years of careful compounding on birds, booze and fast cars.

So my personal alternative for long-term child savings is the stakeholder pension. These can be opened in a child's name and contributions of up to £2,808 per annum can be made on their behalf. In addition, the government currently gives a £22 tax rebate for every £78 payment.

Importantly for me, stakeholders only pay out their benefits when their owners reach 50 (or 55 after 2010). I'm hoping to have taught my son the true value of money by then. In the meantime, he'll have to earn his own cash to fund the birds, booze and fast cars. He won't, however, have that many worries about providing for his retirement. This is the millionaire bit.

I'm contributing £100 a month into my son's stakeholder and the government tops it up to £128. So far at least, the scheme has enjoyed a good start. The tracker fund is up 34% during the past two years and 25 contributions (£2,500 plus £705 tax rebate) to date have earned a decent £483 gain.

By the time Master P turns 18 in 2021, I reckon his pension pot could be worth £54,284 using a 9% average annual return before inflation but after charges (for comparison, the stock market's average long-term return is 11% a year).

Assuming the same 9% annual growth rate for the following 37 years -- and no further contributions -- the pot would grow to £1,316,595 by the time when my son gets access to it in 2058.

Sure, you can argue once again about future growth rates, the effect of inflation and so on, but £1m should still represent a large sum in the decades ahead. I just hope I'm around when my son starts to enjoy it.

More: Learn about Saving For Children | Stakeholder Pensions | Miracle of Compound Interest