Pension for my son?

lakeslass

My son is in his early 20's, working freelance, and unlikely to be able to afford to start a pension for some time. I was thinking of funding him to start a modest stakeholder at £20 per month, any thoughts on this?

dunstonh

When you say freelance, is that on a self employed basis? (if so, then it means less state pension than an employed person)

You can do that and its generous of you but £20 is the sort of figure a 20 year old can get away with only if its indexed annually with the occasional bump.

The premium is too small for personal pensions but is the minimum for a stakeholder.

lakeslass

Thanks for your helpful response, yes he is self employed. I realise £20 won't build up to much but it is the most I can spare and I thought some start was better than none. Hopefully if he has some good years he can top it up or begin to invest on his own behalf as well!

bendix

I'm in two minds on this. While I think it's noble of you to want to do that for your son, I agree with dunstonh about the amount but - more importantly for me - my fear is that when parents do this for their grownup kids it somehow relieves the sense of responsibility from the kid themselves.

If mum is doing it, they will think, why should I bother?

Cautious_Investor_3

Hi

making a contribution to a pension on behalf of your son is indeed a noble gesture. However I do wonder whether he has more pressing financial priorities.

For example, he is 20 now, would it be right to assume that he will want to get on the housing ladder at some point? If he does that with current lending policies it may be harder for him to get a mortgage as a self employed person and he may therefore need a larger deposit.

Why not put the £20 per month into a "high" interest savings account (HSBC pay 8% at the moment I believe if you save £25 per month) which can then be used to help meet the costs of buying a house. Clearly £20 per month will take a while to build up into a meaningful lump sum but it all helps. Plus if in the future you feel that you should have put it into a pension for him then use the savings to pay a lump sum in, he will still get tax relief. At least this way you have some flexibility as to how the money is used, yuo don't if it is paid into a pension.

The Cautious Investor

mitchaa

Completely pointless at that level as we have the pension credits system. Whatever he has in his fund come retirement will be offset against a reduction in his pension credit.

Correct me if I'm wrong anyone?

Loughton_Monkey

Go ahead, and start up a £20 a month Stakeholder for him. It's a 'start', and he will not be able to take it out (if and when tempted).

More valuable, ultimately, though is a very strong education you can give him. And that is for him to be continually aware of the dire need for a pension. He is not too young. As he goes through life, every couple of years minimum, he should sit down and ask the very revealing questions "What am I going to live on when I retire?" and "Given what I am doing with my money now, how much will I get?" Then do something to bridge the gap.

It would be good practice for him to calculate how much that £20 a month is going to give him (plus whatever State Pension he might build up). The answers will, of course, be 'too little', and he will probably genuinely not have the means to do much more just now. However, he will hopefully develop a full appreciation of the financial dynamics involved. I bet 95+% of current retirees would agree that they didn't fully understand it until it was too late.

Loughton_Monkey

mitchaa wrote: »

Completely pointless at that level as we have the pension credits system. Whatever he has in his fund come retirement will be offset against a reduction in his pension credit.

Correct me if I'm wrong anyone?

Maybe not technically wrong. But surely a very negative approach. You are basically assuming that he is going to go through life (and retirements) continually on 'benefits'. Give the lad some credit, and assume he is going to make a success in life.

mitchaa

Loughton_Monkey wrote: »

Maybe not technically wrong. But surely a very negative approach. You are basically assuming that he is going to go through life (and retirements) continually on 'benefits'. Give the lad some credit, and assume he is going to make a success in life.

Not a life on benefits, just that there is no need to put such little amounts into a pension scheme especially if its not going to be enough to outperform the pension credits system.

Niv

The implication from teh OP is that her son cant afford a pension at this time. So in the future he will/,may. I think the OP is aware that £20 per month is not enough on its own to fund her sons retirement. It is a start. I feel that its a shame people look at what benefits they could get if they ignored thier future rather than try and fund themselves. Whoever said we were a welfare state eh? :-/