Child pensions

lawm01

Anyone got any advice on child pensions?  Our daughter is 14 and we've received a sizeable inheritance.  We are debt free and have plenty of savings for emergencies.  We both have quite reasonable pensions.
So we think it makes sense to start a pension for daughter.  She already has some savings, and we have plans to support her through higher education if she chooses that route. Any thoughts?  Any pitfalls? Is there a best way to invest to gain a tax advantage?
There doesn't seem to be much info available on the subject, any advice or thoughts would be very welcome. 

MallyGirl

there is no such thing as a child pension - it is just a pension. The limitation will be that she cannot get tax relief on more than her income (or 3600 gross whichever is higher)

Brie

As I understand it a Child Pension is actually what your daughter would receive from your occupational pension should anything drastic happen to you while she is still young.  What you're asking about is a way to save for a pension for when your daughter is ready to retire.  That might be why you're not googling up very much.

Why a pension though?  Why not an ISA or some other way of setting aside money for when she wants to buy a home?  

As for tax advantages - I don't know that it will gain you any advantage if you are putting ££ into an account of any sort for another person.  And I doubt your daughter is earning much, if anything, at 14 so there would be no tax savings for her.

Albermarle

They are not that popular AFAIK, as you are quite limited in what you can add, and then of course the money is tied up for many decades.
Normally a JISA is the way forward, except that she will be able to access it at 18 . If she left it alone, then fine, but otherwise 4 years is a bit short for investing.
This one is often mentioned as they have no platform charges for JISA's
Junior ISA | Invest in a Junior Stocks and Shares ISA | Fidelity

If you want more control over the money, then may be better to just save/invest it in your own names, and give it to her as and when.
 

Marcon

Brie said:

As I understand it a Child Pension is actually what your daughter would receive from your occupational pension should anything drastic happen to you while she is still young.  What you're asking about is a way to save for a pension for when your daughter is ready to retire.  That might be why you're not googling up very much.

Why a pension though?  Why not an ISA or some other way of setting aside money for when she wants to buy a home?  

As for tax advantages - I don't know that it will gain you any advantage if you are putting ££ into an account of any sort for another person.  And I doubt your daughter is earning much, if anything, at 14 so there would be no tax savings for her.

There'd be an immediate and substantial tax benefit. She doesn't have to be earning anything to get a basic rate tax topup, so if £2880 is paid into a pension by her parents, the pension provider adds another 25% to bring 'her' contributions up to the maximum of £3,600 gross permitted.

Great idea. Have a look at https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics to learn a bit more about defined contribution schemes and then pick your preferred personal pension provider. A basic personal pension, or a SIPP, will do the trick nicely. See https://www.moneysavingexpert.com/savings/cheap-sipps/

xylophone

And I doubt your daughter is earning much, if anything, at 14 so there would be no tax savings for her.

It is likely that she has no relevant income but her parents may contribute up to £2880 to a pension on her behalf and the provider will claim up to £720 from HMRC and add it to her pot.

https://www.thetimes.co.uk/money-mentor/article/pensions-for-children/

Examples

https://www.fidelity.co.uk/junior-sipp/

https://www.hl.co.uk/pensions/junior-sipp

https://www.aviva.co.uk/retirement/aviva-stakeholder-pension/#:~:text=You can start investing towards,for the money to grow.

Albermarle

Marcon said:

Brie said:

As I understand it a Child Pension is actually what your daughter would receive from your occupational pension should anything drastic happen to you while she is still young.  What you're asking about is a way to save for a pension for when your daughter is ready to retire.  That might be why you're not googling up very much.

Why a pension though?  Why not an ISA or some other way of setting aside money for when she wants to buy a home?  

As for tax advantages - I don't know that it will gain you any advantage if you are putting ££ into an account of any sort for another person.  And I doubt your daughter is earning much, if anything, at 14 so there would be no tax savings for her.

There'd be an immediate and substantial tax benefit. She doesn't have to be earning anything to get a basic rate tax topup, so if £2880 is paid into a pension by her parents, the pension provider adds another 25% to bring 'her' contributions up to the maximum of £3,600 gross permitted.

Great idea. Have a look at https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics to learn a bit more about defined contribution schemes and then pick your preferred personal pension provider. A basic personal pension, or a SIPP, will do the trick nicely. See https://www.moneysavingexpert.com/savings/cheap-sipps/

Is it such a great idea though ? She will not be able to access it for about 50 years, and under current rules she could well have to pay some tax on it, making a total tax gain of £180 pa.

Lorian

Sizeable? You may also need to think about IHT rules and what her position would be in if you both passed away unexpectedly -  aside from helping her out with some investments. 

dunstonh

There doesn't seem to be much info available on the subject, any advice or thoughts would be very welcome. 

The rules allowing pensions to be offered to minors were changed in 2001.  that makes it old news that a child can have a pension.  And virtually every pension offers that (there is no specific product for children).    Maybe that's why you haven't seen much.

It's a good idea if you have the money.   Some are less enthusiastic about it but I suspect that depends on how it impacts on you personally.

Marcon

Albermarle said:

Marcon said:

Brie said:

As I understand it a Child Pension is actually what your daughter would receive from your occupational pension should anything drastic happen to you while she is still young.  What you're asking about is a way to save for a pension for when your daughter is ready to retire.  That might be why you're not googling up very much.

Why a pension though?  Why not an ISA or some other way of setting aside money for when she wants to buy a home?  

As for tax advantages - I don't know that it will gain you any advantage if you are putting ££ into an account of any sort for another person.  And I doubt your daughter is earning much, if anything, at 14 so there would be no tax savings for her.

There'd be an immediate and substantial tax benefit. She doesn't have to be earning anything to get a basic rate tax topup, so if £2880 is paid into a pension by her parents, the pension provider adds another 25% to bring 'her' contributions up to the maximum of £3,600 gross permitted.

Great idea. Have a look at https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics to learn a bit more about defined contribution schemes and then pick your preferred personal pension provider. A basic personal pension, or a SIPP, will do the trick nicely. See https://www.moneysavingexpert.com/savings/cheap-sipps/

Is it such a great idea though ? She will not be able to access it for about 50 years, and under current rules she could well have to pay some tax on it, making a total tax gain of £180 pa.

The fact she can't access it until her autumn years is either a plus or a minus, depending on your outlook. 

Hopefully the investment gain over half a century will be rather better than £180. Several friends of mine invested their children's child benefit from the child's birth, and in recent years were already getting letters that they were in danger of breaching the Lifetime Allowance at the ripe old age of 18, so I think your take on it might be a bit pessimistic!

Do the basic saving early enough and the problem of retirement income could be well on the way to being sorted out long before she's even eligible for auto-enrolment.

Marcon

Lorian said:

Sizeable? You may also need to think about IHT rules and what her position would be in if you both passed away unexpectedly -  aside from helping her out with some investments. 

£2,880 is the maximum which can be contributed to the child's pension, and that's under the £3,000 annual gifts allowance.