Child pensions

Roger175

Back in the mid noughties, when things were far rosier than they are now, we started pensions (SIP with HL) for each of our 3 kids and proceeded to contribute £100 a month each for a couple of years. It seemed a good idea at the time, but it really didn't give them much in the grand scale of things and I wish now we hadn't done it. In truth we should have set it aside somewhere else and used it to help them with a deposit when they needed it. I think this would have been far more useful.

gm0

Wow such a lot of negativity.  An instant risk free return of £720 on £2880. Every year.

Then invested as the £3600 for the entry cost of £2880.

Then time in the market to look through volatility to long term asset class return.  A decent starting pot saved by the time you start work.  Money is fungible.  If this is done with spare cash by grandparents or parents early on in life then the child saver is not compelled to try to save that money later in life to achieve the same pension results by age 40 say. 
Or if they have a job where they can still save from employment income and meet other costs then that's great.  Clearly doing well.  

Cash in the squeeze aged around 30 can go on mortgage, student loans, their own kids or something else. Due to the money + returns for 20 years already saved. Reduced saving is at least a possible choice if expenses squeeze income.

Of course not every family generates the spare cashflow to access this deal in full or at all. 

But if you do have the cashflow across a family it is hard to find a similarly good offer with no more risk than you choose to then layer on in selecting very long term pension investments

Yes it's locked up.  That's the pension incentive. It's a given

sevenhills

Marcon said:

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.

I have thought about doing this, although I am not wealthy enough.
Not only is there the many years of gradual increases, but if you put the thought in their heads about saving/investing in shares or unit trusts.

DT2001

MIL put £3600 gross in for our children when they were born or soon thereafter. The growth achieved helps educate the advantage of investing long term. All the children have other investments so putting some aside long term seems a good idea to me.

cloud_dog

Just to comment... We opened one in their mid / later teen years (post JISA / ISA contributions), primarily simply to know one exists and where we can contribute to should that the inclination take us, for example IHT considerations later.  We simply contribute the minimum, and this may stop at some point.

Nurse2047

I contribute just £25 per month for my kids in a fidelity sipp/ I know a lot may say what’s the point ! However in my eyes this will give them a small start when they are 18 and the money isn’t missed. 

kinger101

As has been pointed out, the gain isn't £720 on £2880.  The assumes none of the pension will be taxed.  My tuppence worth.  It's probably only worth considering if you have absolutely no better idea what to do with the money and the child isn't in a position where they'd need to work as an adult.  Personally, I think a junior ISA (or even using the parental ISA) is a better option.  Most kids will probably benefit more than having the deposit for a house while relatively young than having their pension filled up.

It can actually be counterproductive in tax terms if they would have been in a position to fill their own pension out income that would have been taxed at 40 percent, or basic rate via salary sacrifice.  If they get onto the property ladder sooner, they'll be in a better position to make more cost-effective contributions to their own pension.

elouise01582

Have you considered topping up her child trust fund or junior ISA that she would have been given at birth? I think the maximum now is £9,000 per annum and then between 16 and 18 years of age she can have a standard ISA too?