Children’s Pension

ELL2018

Hi. 
I was on a YouTube Wellness clinic, with the Money Advice Service presenting. It came up briefly that you can start a Child’s Pension. I never knew you could do this. We have a child’s ISA started for our son, a separate savings account. Is it even worth looking into a children’s pension? Does anyone have any information about them? Sounds interesting......can never start too early. Just wanted to know if anyone else has experience, or know where to start to look for the best ones.

dunstonh

It came up briefly that you can start a Child’s Pension. I never knew you could do this.

The rules changed in 2001 to allow it.

Is it even worth looking into a children’s pension?

It can be.  It largely depends on your budget and what you are looking to achieve.   i.e. do you focus on their long term or their short and medium-term (i.e. university, house purchase etc).     A pension is no use if you wish to build up funding for uni or house purchase but if you are already doing that then the pension can be a valuable option.   Some grandparents pay into a pension for their grandchildren (getting tax relief and reducing their IHT costs where applicable).

Does anyone have any information about them? 

It isn't a separate product.   Virtually all individual retail pensions will accept minors. 

Murphy_The_Cat

Fidelity don't charge a service fee on their Junior SIPPS.

I've recently opened Junior SIPPS for my sprogs via Fidelity and it was a very easy and straightforward process.

Have a go with an online compound interest calculator and see what a massive difference it makes when you have additional years compounding on - I wish I'd have done a Junior SIPP for the sprogs when they were babies.

TimSynths

Also a great way to get youngsters thinking about their long term financial future, as soon as they hit the jobs market @ 18, 21 or whenever they are all ready to go, know a bit about them and understand the importance.

AnotherJoe

I say dont. Martin Lewis said dont unless you've already maxxed out all over savings scheme (inc JISAs) for them.

You are locking money away from them for maybe 60 years that they could have used for education, housing, health, travelling, a whole host of things.

My kids are getting help with housing right now, in their mid 30's, from money i saved for them (but could equally have been in an ISA in their names), which is a damn sight more useful than money they can spend on rent in 30 years time because i locked it away until then so they dont have a house.

Alexland

I would agree a child pension is probably a last resort if you really have no better wrapper to invest the money having used all your S&S adult and junior ISA annual allowances. It's locking the money away for such a long time for only a very modest tax benefit when it could be far more useful to the child when trying to get on the property ladder, etc. It's not like the child is getting any salary sacrifice or higher rate tax relief on the contribution and they could always make the same contribution later in life when there might be more efficient ways for them to do it.

OldBeanz

It shows them the benefits of compound interest. My son was able to whack the money into his teachers' DB pension. Another son is in the Reserves and able to pay in there as well. Both had to be done in the first year and both now realise how much their pensions are worth. I have other savings for them and £16-£20 pcm was well worth the money for the 'little but long' lesson alone.

Murphy_The_Cat

Alexland said:

 and they could always make the same contribution later in life when there might be more efficient ways for them to do it.

Very true - but they will also have missed out on 10/15/20/25 (delete as appropriate) years of the effect of wonderful compound interest.

Alexland

OldBeanz said:

It shows them the benefits of compound interest.

Murphy_The_Cat said:

Very true - but they will also have missed out on 10/15/20/25 (delete as appropriate) years of the effect of wonderful compound interest.

If the money was still invested via a more accessible S&S wrapper such as a Junior ISA they would get a compound return each year but without having the money tied up until a point in life where it would be less useful. I wasn't suggesting putting the money in a 0% cash account for all those years.

Murphy_The_Cat

Alexland said:

OldBeanz said:

It shows them the benefits of compound interest.

Murphy_The_Cat said:

Very true - but they will also have missed out on 10/15/20/25 (delete as appropriate) years of the effect of wonderful compound interest.

If the money was still invested via a more accessible S&S wrapper such as a Junior ISA they would get a compound return each year but without having the money tied up until a point in life where it would be less useful. I wasn't suggesting putting the money in a 0% cash account for all those years.

But they wouldn't get the 25% addition that HMG adds to every contribution either - which makes an enormous difference over the 50+ years of compunding on the SIPP.

In the ideal world, do both.

Alice_Holt

I've been funding my (now young adults) nieces SIPP for about 10 / 11 years.

For me it has several advantages - 
- IHT efficient (in taking money out of my estate);
- attracts tax uplift in the SIPP;
- it will mean when my nieces are in their 30 / 40's they won't need to prioritise pensions and will be able concentrate on other financial necessities.

Currently the two funds total c. £160k, thanks to impressive market returns and dividend reinvestment.