Children’s Pension

OldBeanz

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.

What makes you think that money is less useful when you want to retire?
How do you get people under 30 interested in pensions?

Alexland

Murphy_The_Cat said:

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.

...and under current rules they would probably pay income tax on 75% of the SIPP on withdrawal assuming the pension they build up through employment is at least enough to use up their personal allowance in retirement. If anything using up some of their LTA through low benefit child contributions might give them less opportunity to use it more efficiently later in life for higher rate or sal sac contributions.

OldBeanz said:

What makes you think that money is less useful when you want to retire?

Money available earlier in life towards education could be a multiplier on the income they earn across their whole career, money to help them get on the housing ladder could avoid years of wasted rent and get the benefits of mortgage leverage working earlier, etc.

OldBeanz said:

How do you get people under 30 interested in pensions?

They can learn just as much about investment growth from any S&S wrapper and the enhanced benefits of a LISA (no income tax on withdrawal) or workplace pension (employer matching and possible sal sac) are more compelling to a young adult.
But yes sure if you have done everything else and still have money to invest then maybe.

Murphy_The_Cat

Alexland said:

Murphy_The_Cat said:

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.

...and under current rules they would probably pay income tax on 75% of the SIPP on withdrawal assuming the pension they build up through employment is at least enough to use up their personal allowance in retirement. If anything using up some of their LTA through low benefit child contributions might give them less opportunity to use it more efficiently later in life for higher rate or sal sac contributions.

Depending on my level of contributions of course.

My outlook is that from my (relatively) low level of contributions, plus HMRC's contribution, I'm giving them a 5/10/15 year head start of a comfortable retirement.  Hopefully, because of this, they won't become one of the small army of people who wake up one morning, realising that "oh dear, I should have started properly putting into a pension many years ago and now I'm going to have to put in a shedload every month (which I can't really afford) or work way longer than I want to do".

In my world, contributions made now, with the HMRC contribution added give a 100% guaranteed, tangible value to their pension pots - noone knows if in years to come higher rate or salary sac contributions will still exist.

IIRC, I started my pension when I was 16 (although my mind may be playing tricks on me and it may have been 18) and it was possibly one of the best things that I ever did (even better if I'd ticked the box to increase my contributions in line with inflation each year !).  Back then, you couldn't do pensions for sprogs, but times have changed and now you can.  Their financial education has started early** and they'll reap their rewards in years to come. Doing this for them is something that I really want to do and they'll also see another benefit when I pop my clogs -- every £ that I've put into their pensions won't get 40% stolen from them in IHT.

** my youngest asked me why they aren't taught things like pensions, JISA's, compound interest and overdrafts in school rather than wasting their time on .............................. (I'll leave this bit blank, to save some people being upset)

Alexland

Alice_Holt said:

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

If they have access to a sal sac workplace pension or unused LISA allowance there might be more efficient ways of helping them build up a bigger retirement pot than making direct SIPP contributions.

Alexland

Murphy_The_Cat said:

IIRC, I started my pension when I was 16 (although my mind may be playing tricks on me and it may have been 18) and it was possibly one of the best things that I ever did (even better if I'd ticked the box to increase my contributions in line with inflation each year !).

I'm the opposite and regret some of my earlier pension contributions as at the time my employer didn't offer salary sacrifice but I was still contributing more than required to get employer matching. I thought it was a good thing to be doing but looking back the benefit was marginal similar to a direct SIPP contribution. It would have been better to have contributed only enough to get the employer matching when I was just getting the 25% uplift and much more as soon as I became a higher rate taxpayer with salary sacrifice. Knowing that when first joining a workplace pension my contribution pattern would have been far more efficient and I would have saved thousands. Now having already used around 40% of the LTA by the end of my 30s (and with a little bit of growth above inflation over the next 20 years maybe 60%) that only leaves around 40% for the rest of my working life which is like having a £20k annual allowance (or less if you consider growth on those new contributions) going forward. Its going to be tight and that wouldn't have been helped if my parents had wasted my LTA with child SIPP contributions. So overall I see pensions as a tool to be tax efficient during your working life and so making child contributions is kinda limiting their tax options in future. It's hardly likely that they will end up in the poor house either way from families that are also doing IHT planning.

Murphy_The_Cat

Alexland said:

Murphy_The_Cat said:

IIRC, I started my pension when I was 16 (although my mind may be playing tricks on me and it may have been 18) and it was possibly one of the best things that I ever did (even better if I'd ticked the box to increase my contributions in line with inflation each year !).

I'm the opposite and regret some of my earlier pension contributions as at the time my employer didn't offer salary sacrifice but I was still contributing more than required to get employer matching. I thought it was a good thing to be doing but looking back the benefit was marginal similar to a direct SIPP contribution. It would have been better to have contributed only enough to get the employer matching when I was just getting the 25% uplift and much more as soon as I became a higher rate taxpayer with salary sacrifice. Knowing that when first joining a workplace pension my contribution pattern would have been far more efficient and I would have saved thousands. Now having already used around 40% of the LTA by the end of my 30s (and with a little bit of growth above inflation over the next 20 years maybe 60%) that only leaves around 40% for the rest of my working life which is like having a £20k annual allowance (or less if you consider growth on those new contributions) going forward. Its going to be tight and that wouldn't have been helped if my parents had wasted my LTA with child SIPP contributions. So overall I see pensions as a tool to be tax efficient during your working life and so making child contributions is kinda limiting their tax options in future. It's hardly likely that they will end up in the poor house either way from families that are also doing IHT planning.

I suspect that I am of a different generation to you - when I started in the world of work, I don't think that employer matching and salary sacrafice were a thing (did they even exist back then ?).

I may be missing something from your post.  If you're at risk of breaching the LTA, why don't you reduce your contributions and enjoy the here and now ?

As for doing IHT planning, its a very sensible thing to do.  I've recently seen first hand how much time, effort & money has been wasted (plus how much has been stolen by HMRC), when with some long term planning, the money would have stayed with the family.

Alexland

Murphy_The_Cat said:

I suspect that I am of a different generation to you - when I started in the world of work, I don't think that employer matching and salary sacrafice were a thing (did they even exist back then ?).

I understand that informal salary sacrifice dates back to the 1970s when employers gave certain valued employees additional benefits (in place of a pay rise) to get around their published policies to have a company wide pay freeze. It seems to have become more widespread in the last 20 years particularly as employers have gravitated towards DC schemes. Under DB schemes there was no need for the employer to declare their costs as a matched contribution just the benefits they were offering. I'd love to have had access to a DB scheme for the assured outcome and lower LTA impact.

Murphy_The_Cat said:

I may be missing something from your post.  If you're at risk of breaching the LTA, why don't you reduce your contributions and enjoy the here and now ?

I do enjoy here and now having reduced my hours but the combined higher rate tax and child benefit clawback makes it very inefficient to take more income. There's a limit to how much fun you can have anyway with the virus situation and young kids to look after. Our days are still scheduled around nap times, etc.

Murphy_The_Cat said:

As for doing IHT planning, its a very sensible thing to do.  I've recently seen first hand how much time, effort & money has been wasted (plus how much has been stolen by HMRC), when with some long term planning, the money would have stayed with the family.

Yup I'm sure we can all agree on that one!

Murphy_The_Cat

Alexland said:

Murphy_The_Cat said:

I suspect that I am of a different generation to you - when I started in the world of work, I don't think that employer matching and salary sacrafice were a thing (did they even exist back then ?).

I understand that informal salary sacrifice dates back to the 1970s when employers gave certain valued employees additional benefits (in place of a pay rise) to get around their published policies to have a company wide pay freeze. It seems to have become more widespread in the last 20 years particularly as employers have gravitated towards DC schemes. Under DB schemes there was no need for the employer to declare their costs as a matched contribution just the benefits they were offering. I'd love to have had access to a DB scheme for the assured outcome and lower LTA impact.

Murphy_The_Cat said:

I may be missing something from your post.  If you're at risk of breaching the LTA, why don't you reduce your contributions and enjoy the here and now ?

I do enjoy here and now having reduced my hours but the combined higher rate tax and child benefit clawback makes it very inefficient to take more income. There's a limit to how much fun you can have anyway with the virus situation and young kids to look after. Our days are still scheduled around nap times, etc.

Back in the day, 16 year old oiks were grateful to be getting paid for doing a job, rather thatn being on YTS. Whilst  I had a value to my boss, it wasn't that much  of a value.

Maybe, possibly, perhaps because I've missed out on the "joy" of being a HRT, I don't spend much time on working out how to squeeze every £ of value from my after tax income.  If I was a HRT payer, my views could be different.

Enjoy every minute of your youngsters being tiny and working things around nap times.  Its a wonderful time and will be over before you know it.

Whilst we're on the subject, have you ever considered opening a SIPP for the sprogs.  The benefits would be huge for them...................................

cloud_dog

We have started a pension for our DD, although only contributing the minimum, and one of the reasons for doing this, unfortunately, is as old as time.  She is likely to be disadvantaged over the course of her working life due to her sex.  This is not about ideology but real life.

german_keeper

Alexland said:

Murphy_The_Cat said:

I suspect that I am of a different generation to you - when I started in the world of work, I don't think that employer matching and salary sacrafice were a thing (did they even exist back then ?).

I understand that informal salary sacrifice dates back to the 1970s when employers gave certain valued employees additional benefits (in place of a pay rise) to get around their published policies to have a company wide pay freeze. It seems to have become more widespread in the last 20 years particularly as employers have gravitated towards DC schemes. Under DB schemes there was no need for the employer to declare their costs as a matched contribution just the benefits they were offering. I'd love to have had access to a DB scheme for the assured outcome and lower LTA impact.

Murphy_The_Cat said:

I may be missing something from your post.  If you're at risk of breaching the LTA, why don't you reduce your contributions and enjoy the here and now ?

I do enjoy here and now having reduced my hours but the combined higher rate tax and child benefit clawback makes it very inefficient to take more income. There's a limit to how much fun you can have anyway with the virus situation and young kids to look after. Our days are still scheduled around nap times, etc.

Murphy_The_Cat said:

As for doing IHT planning, its a very sensible thing to do.  I've recently seen first hand how much time, effort & money has been wasted (plus how much has been stolen by HMRC), when with some long term planning, the money would have stayed with the family.

Yup I'm sure we can all agree on that one!

Not all of us but I am sure I am in a minority of one with that.