childrens pensions, are they good value?

aberdeenangus

An IFA has told my sister NOT to set up pensions for her teenage children. He said the growth would be large enough for taxes to kick in and make it financially poor value.


Does that sound likely? I've had a quick google and my first impression is that a few grand is a great way to contribute to their retirement. Tax relief on the contribution too!


I'd like to do a one-off lump sum of 3.6k (1 year's maximum) for my own kids, age 5 and 8. Any thoughts if that makes sense?


Thanks for any help, much appreciated.

Dunnit

You can only contribute £2880 which the government rounds up to £3.6k. No reason why not.

dunstonh

An IFA has told my sister NOT to set up pensions for her teenage children. He said the growth would be large enough for taxes to kick in and make it financially poor value.

Doesnt seem to make any sense. Children would get 50-60 years of tax free growth and it would really make a difference to them in retirement.

MoneySavingUser

Dunnit wrote: »

You can only contribute £2880 which the government rounds up to £3.6k. No reason why not.

If someone has 5 children can they contribute 5 x £2880?

I assume only one person can contribute to these pensions at one time? or can both parents put in £2880 into their childrens pension schemes?

somethingcorporate

As many people as they want can contribute to a child's scheme but the individual that the scheme is for is limited to the £2,880pa.

Mattygroves2

dunstonh wrote: »

Doesnt seem to make any sense. Children would get 50-60 years of tax free growth and it would really make a difference to them in retirement.

Presumably he assumes that the lifetime limit will be breached if contributions start very early and then continue for 65 - 70 years.

It's the lack of flexibility that would put me off contributing in this way. I'd prefer the JISA route.

dunstonh

Mattygroves2 wrote: »

Presumably he assumes that the lifetime limit will be breached if contributions start very early and then continue for 65 - 70 years.

It's the lack of flexibility that would put me off contributing in this way. I'd prefer the JISA route.

£3600 invested for 50 years at 4% p.a. would be £25,584. The lifetime allowance is not going to be threatened.

ozzage

The IFA basically said don't invest because the kids will end up with too much money later and get taxed???? None of that makes any sense...

We have a pension for our daughter. I think it's a great idea and can give them a real head start even with a very small regular contribution (or a bigger one-off one!)

dunstonh

The IFA basically said don't invest because the kids will end up with too much money later and get taxed???? None of that makes any sense...

You are right, it doesnt. it gives them a nice kickstart but it is nowhere near the lifetime allowance.