Buying pension for adult children

RonnieIH7151

Is it possible to buy a pension for my adult daughters? If it is, what is best one to buy? Thanks

Albermarle

RonnieIH7151 said:

Is it possible to buy a pension for my adult daughters? If it is, what is best one to buy? Thanks

Do you mean set up a new personal pension for them, that they/you will contribute to and build up a retirement pot?

You need to explain better exactly what you mean.

xylophone

Do your daughters have workplace pensions?

Secret2ndAccount

Yes, and no.
The main benefit of paying into a pension is that you get tax relief. You probably pay some tax when you eventually take it out, but you saved more tax when you put it in. I realise that you are trying to give your daughter a comfortable retirement rather than handing her a pile of cash. The problem is that you have already paid tax on the money you would use. If you pay it into a pension for her, nobody gets the tax relief, but she will pay tax on it when she draws it out. A bit of a waste - a proportion of the money just goes up in smoke.
The workaround is for her to promise to increase her pension contributions, and you give her the money to make up for it. If your daughter earns 20k, she can make personal contributions of 16k, and get 4k tax relief added, for a total of 20k. You then give her 16k to live on. 
If you didn't care about the tax, and just wanted to boost her pension pot, she has an annual limit of 40k for all contributions - you, her, taxman, her employer. However, this limit (not the above one related to earnings) can pull in previous unused allowance for up to to 3 years. So you could put in potentially over 100k, but what a waste of tax relief!
If you have a limited company, and she could be an employee, then your company, as her employer, could make the contributions (maybe 100k as above) and your business could save tax by doing so. She would need to be really an employee or the tax inspector might come knocking.

One solution to look at is 'Purchased Life Annuity'. It is possible to purchase an annuity for someone without limits on the amount of money you can put in in one go. So you pay in a lump sum, and they receive a regular payment (monthly, say) from a chosen age. In this situation, only a modest amount of tax is paid on the income, so less wasteful (think of it as paying tax on the interest that the money makes, but no tax on the original money you put in). Many people consider annuity rates to be poor value. Others think they can be quite fair. It does seem to be a way to meet your needs. Realise that the above methods of contributing receive tax relief (you can get money added to the money you put in), while this method does not.

wjr4

Secret2ndAccount said:

If your daughter earns 20k, she can make personal contributions of 16k, and get 4k tax relief added, for a total of 20k. You then give her 16k to live on. 
If you didn't care about the tax, and just wanted to boost her pension pot, she has an annual limit of 40k for all contributions - you, her, taxman, her employer. However, this limit (not the above one related to earnings) can pull in previous unused allowance for up to to 3 years. So you could put in potentially over 100k, but what a waste of tax relief!

If she was earning £20k, she can only put in £20k gross. She can only use carry forward if she has relevant earnings of over £40,000 gross 

dunstonh

Is it possible to buy a pension for my adult daughters?

No.  They have to buy it.  However, you can gift them the money for them to pay into the pension they set up. Or you can make a third party payment but that is more complicated and it may not get tax relief with some providers.

Secret2ndAccount

wjr4 said:

Secret2ndAccount said:

If your daughter earns 20k, she can make personal contributions of 16k, and get 4k tax relief added, for a total of 20k. You then give her 16k to live on. 
If you didn't care about the tax, and just wanted to boost her pension pot, she has an annual limit of 40k for all contributions - you, her, taxman, her employer. However, this limit (not the above one related to earnings) can pull in previous unused allowance for up to to 3 years. So you could put in potentially over 100k, but what a waste of tax relief!

If she was earning £20k, she can only put in £20k gross. She can only use carry forward if she has relevant earnings of over £40,000 gross 

No, if she earns 20k she can only get tax relief on 20k. My post made this quite clear. She (or her father) can use carried forward annual allowance to pay over 40k into her pension without penalty. Just no tax relief.
If I earned 100k I could sal sac down to 20k, and have my employer pay in 80k, as long as I had sufficient carried forward AA. Surely you don't dispute that. This is the same case, just with the parent paying in the 80k instead of the employer.
The only impediment might be that the pension provider's software/admin might cough and splutter with it (one would hope not), but I maintain that it is permitted.

Albermarle

The only impediment might be that the pension provider's software/admin might cough and splutter with it (one would hope not)

I would suspect most providers would struggle to handle this.

Yorkshire_Dangermouse

Would there not also be a restriction from the employer, preventing the employee reducing their salary to below national minimum wage ?

Brie

Yorkshire_Dangermouse said:

Would there not also be a restriction from the employer, preventing the employee reducing their salary to below national minimum wage ?

How could increasing pension contributions reduce a person's salary?  They are still getting paid.

For the OP - like any gift you might think of making do be sure you don't get into issues with IHT (in case of your death) and deprivation of assets (in case of you needing local authority care support)

Secret2ndAccount

Yorkshire_Dangermouse said:

Would there not also be a restriction from the employer, preventing the employee reducing their salary to below national minimum wage ?

That only applies with Salary Sacrifice. You can't Sal Sac yourself below the minimum wage.
If you contribute through relief-at-source (many people do) it would be possible to have your employer deduct most or all of your salary, and put it into a pension, though this would not be a great plan either. Once the deductions took your salary below 12570 (or your personal allowance if different) you would stop saving tax.
Easiest thing to do might be to open a SIPP, and pay the last 13k or more into the SIPP. That comes out of taxed income, but the SIPP is topped up by an equivalent amount by the taxman.

Salary sacrifice as much as possible;
Then optionally make additional contributions to your workplace pension (but make sure you are getting tax relief);
Then pay the rest into a SIPP.

You can get tax relief on 100% of your earnings or £2880->£3600. No more, no less. Not dependent on how much tax you paid.
You can contribute more, up to your annual allowance, but there's usually no point. No tax relief on the way in, but probably taxed on the way out.
Edit to add: If it's your employer that's paying the extra contribution, that is a good thing. You are effectively saving tax because that money goes in (untaxed) to the pension rather than going into your pay packet and getting taxed. So you could easily have a year where the total contributions to your pension exceeded the amount you earned.