JISA and/or Stakeholder pension for child?

grey_gym_sock

well, if what they'd like to do with some extra money is put it in a pension - which it might be - then if it's already in a pension, that works out perfectly (unless they'd now be a position to get tax relief on contributions at more than 20%). if what they'd like to do with it is anything else, it doesn't.

you can assume ppl will be too irresponsible to do the right thing, if given the choice. but you can't actually tell what the best thing for them to do will be from this far ahead.

ozzage

Pension charges don't have to be higher than ISA charges so that's a non-starter as an argument.

As for "what they'd like to do with some extra money" and whether it's the "best thing to do this far ahead", I have two responses:

1. About the only thing I CAN say for certain is that they will need to provide for their retirement one day and it's the thing they are LEAST likely to be worried about at the time when it would help most.

2. This is MY money, not theirs, so I don't really care what they, as a 20 year old, will think is "best" to do with it!

grey_gym_sock

pension charges depend on what you're doing. they're certainly sometimes higher. e.g. it's likely to be sensible to use income drawdown eventually, which incurs significant charges; you won't pay significant charges to take money out of an ISA. for a long-lasting pension, it all adds up.

the tax advantages of pensions are marginal when you only get 20% relief on contributions. add to that the possibility of the taxation of pensions becoming less favourable (again), the possibility of income tax being higher when you draw the taxable pension (can you predict income tax rates 50+ years ahead? i can't), the possibility of the 25% tax-free lump sum being restricted, the possibility that there will be good uses for the money but which it can't be used for while it's in a pension (e.g. starting a business, house deposit), ...

of course, it's your money, and you don't have to provide for your children at all when they're grown up.

rather than financially tying children's hands behind their backs, it would be much more useful to teach them to be sensible with money.

FatherAbraham

grey_gym_sock wrote: »

the tax advantages of pensions are marginal when you only get 20% relief on contributions.

The tax advantages of pensions (20% tax relief) are quite remarkable when the beneficiary in question isn't paying income tax in the first place.

Warmest regards,
FA

grey_gym_sock

FatherAbraham wrote: »

The tax advantages of pensions (20% tax relief) are quite remarkable when the beneficiary in question isn't paying income tax in the first place.

they are remarkable at first glance.

but then you realize you're looking at it the wrong way. what matters are the relative rates of the tax paid when drawing the pension compared to the tax relief when contributing to it.

sabretoothtigger

The immediate bonus of 20% added blows ISA out of the water. If they are really giving that to kids, its free money

How many years will the ISA take to get that 20% earned. Meanwhile the pension can compound it

Apart from a housing deposit theres not many times like that you compound the benefit. Maybe the option there might be to contribute to your own (underfunded) pension then give money out of that later to reduce a mortgage

grey_gym_sock

sabretoothtigger wrote: »

The immediate bonus of 20% added blows ISA out of the water.

it doesn't. the pension will be taxable. you can't ignore that. you're being paid to turn capital (which isn't taxable) into income (which is).