Starting a pension on behalf of (adult) children

Desktop50

My twin daughters will be 21 in the coming months and I would like to set up a pension scheme with modest monthly payments which will initially be paid by me and (hopefully!) in the future be taken on by the girls when they start full-time employment (both at Uni currently). I'm after a minimal risk plan which allows flexibility in how much/little is paid in monthly. Any suggestions gratefully accepted.

dunstonh

I'm after a minimal risk plan

What do you define as minimal risk?

With long term retirement provision (irrespective of which tax wrapper you use), you are looking at investment risk, shortfall risk and inflation risk. If you go too low on investment risk than you increase shortfall risk and inflation risk. So, given the 47-50 timescale, being too low on investment risk can actually increase the risk.

Stakeholder pensions have the most flexibility on payment options. Personal pensions "tend" to be the cheapest option but focus on larger amount (100pm minimum for example). SIPPs have the most advanced options but can range from being relatively cheap (unlikely on small amounts) to being very expensive. More geared to experienced investor.

xylophone

http://www.cavendishonline.co.uk/pensions/

http://www.hmrc.gov.uk/incometax/relief-pension.htm
might be worth a look.

jamesd

Why are you considering using this money for pension contributions when they are likely to receive much more benefit if the money is used in other ways, like helping with a property deposit?

It isn't really sensible to do it outside a work scheme at this sort of age. A work scheme often comes with employer contribution matching and maybe additional NI saving via salary sacrifice. Those can make waiting until they are working double or triple the amount of pension your money buys for them. So even if you really want to restrict it to pension use, now isn't the best time to be doing that.

What do you mean by minimal risk? What I'd mean by minimal risk is wholly inappropriate for 21 year olds, who should be using high or medium-high risk or higher if possible. It's a common mistake for younger people to use risk levels that are far too low for their situation. You seem to be planing to encourage that poor decision, perhaps projecting your own risk tolerance as someone who has already accumulated money and is much closer to retirement onto the situation of those who are nowhere near to being comparable in circumstances.

atush

I see the value of a pension for a 21 yr old, I fail to see the option of low risk funds for this age profile.

Medium equity risk would outperform lower risk options over periods of 20-50 years.

Perelandra

I'm guessing that your daughters won't be paying 40% tax when they turn 21, but do you think they're likely to reach this point during their careers? If so, it may make more sense to invest in an ISA for now (tends to be lower cost, will allow much of the same investments, and eventually might give a better advantage if the girls have access to a good employer scheme and/or are higher rate tax payers).

Otherwise- what the others have already said above me.

OldBeanz

If investing small amounts then a Stakeholder pension would be the place to start.
A number of pensions will allow them to transfer in these funds in the first year which will give them a head start.
As stated you can take risks with a product which will have at least 30 years to run.
A pension will ensure that the money is not spent on student type expenditure.

grey_gym_sock

forget it, and help them with houses deposits instead. (unless you've already set aside plenty of money for that.)