PENSIONS FOR GRANDCHILDREN

Bobby4puddings

I have 5 grandkids aged 6yrs - 16yrs. I'm thinking of opening some sort of pension scheme for them for when they need a pension (a long time off yet!), whereby I can put a lump sum in for each now and then put money in when I can.
Ideally I want one which I don't pay tax on (if there is such a thing!)
Can anybody recommend what type of pension or savings I should be looking at?

Marcon

Bobby4puddings said:

I have 5 grandkids aged 6yrs - 16yrs. I'm thinking of opening some sort of pension scheme for them for when they need a pension (a long time off yet!), whereby I can put a lump sum in for each now and then put money in when I can.
Ideally I want one which I don't pay tax on (if there is such a thing!)
Can anybody recommend what type of pension or savings I should be looking at?

You don't get tax relief, but they do!

You can pay in up to £2,880 a year for each grandchild and the pension provider will add basic rate tax to top that up to £3,600, even though the children aren't taxpayers.

There is nothing special about a child's pension - a 'junior' SIPP is just a marketing term. You could look at a SIPP, or a simple stakeholder plan.

Marcon

You'll get plenty of people telling you not to do it: https://forums.moneysavingexpert.com/discussion/6530199/junior-sipp#latest

...but when your grandchildren get into their 70s and want to retire, they'll remember you with considerable gratitude, especially if they are still having to pay rent...

caveman8006

Might be worth thinking about the IHT implications though...these payments could be liable for IHT if you don't survive them for 7 years unless you can demonstrate that they are out of "excess income" and you intend to continue them indefinitely. Worth putting some paperwork into place if you go this route

dunstonh

Can anybody recommend what type of pension or savings I should be looking at?

Most retail pensions will accept minors.    However, they will require the parents or guardian to be in control.  The grandparent cannot be.    So, you will need to involve the parents and in some cases, the parent will need to make the payment.   i.e. you pay the parent and the parent pays it into the pension.

Exodi

Marcon said:

You'll get plenty of people telling you not to do it: https://forums.moneysavingexpert.com/discussion/6530199/junior-sipp#latest

...but when your grandchildren get into their 70s and want to retire, they'll remember you with considerable gratitude, especially if they are still having to pay rent...

I'd counter that by saying depending on the size of the contributions, they might not need to be in a situation where they are still having to pay rent up to retirement if the funds were made available to them sooner.

I'm sure some would be more grateful at the assistance buying their first car, or putting a deposit down on their first house, than an addition to their pension pot which they won't see until retirement.

The counterpoint to this (putting the money in a savings account instead of a SIPP) is usually 'but they could empty the entire pot at 18 years old and blow it in a few months on nights out, takeaways and designer clothing.' - which I'd wholeheartedly agree with, which is why my suggestion is always to invest the money in your own name and gift it to them when the time is right. I guess we're (un)fortunate enough that my wife and I aren't able to max out both of our ISA allowances every year.

Marcon

caveman8006 said:

Might be worth thinking about the IHT implications though...these payments could be liable for IHT if you don't survive them for 7 years unless you can demonstrate that they are out of "excess income" and you intend to continue them indefinitely. Worth putting some paperwork into place if you go this route

Bobby4puddings said:

.... I can put a lump sum in for each now and then put money in when I can.

Wouldn't qualify as 'gifts out of surplus income' - good explanation here as to why not: https://whitingsllp.co.uk/gifts-out-of-surplus-income-exemption/

Albermarle

The counterpoint to this (putting the money in a savings account instead of a SIPP) is usually 'but they could empty the entire pot at 18 years old and blow it in a few months on nights out, takeaways and designer clothing.'

There is always an assumption that this would be 100% a bad thing.

However blowing some money on enjoying yourself when you are young is part of life.

A compromise is to build up some in a pot ( JISA etc) for them, but keep some back for a later date.

Marcon

Albermarle said:

The counterpoint to this (putting the money in a savings account instead of a SIPP) is usually 'but they could empty the entire pot at 18 years old and blow it in a few months on nights out, takeaways and designer clothing.'

There is always an assumption that this would be 100% a bad thing.

However blowing some money on enjoying yourself when you are young is part of life.

A compromise is to build up some in a pot ( JISA etc) for them, but keep some back for a later date.

Unfortunately that's exactly what far too many youngsters (usually aged from 16 to 40+!) are doing... Fine when you're a teenager, less good when you are facing poverty in retirement because you've not grown up in time.

Albermarle

Marcon said:

Albermarle said:

The counterpoint to this (putting the money in a savings account instead of a SIPP) is usually 'but they could empty the entire pot at 18 years old and blow it in a few months on nights out, takeaways and designer clothing.'

There is always an assumption that this would be 100% a bad thing.

However blowing some money on enjoying yourself when you are young is part of life.

A compromise is to build up some in a pot ( JISA etc) for them, but keep some back for a later date.

Unfortunately that's exactly what far too many youngsters (usually aged from 16 to 40+!) are doing... Fine when you're a teenager, less good when you are facing poverty in retirement because you've not grown up in time.

Luckily the ones I have known, including my own,  started to get more sensible from age 21 onwards, so less of an issue. 

Ciprico

My kids spent their inheritance from grandparents on things they felt were essential for students, but I didn't. I was hoping they'd try to keep it intact for a house deposit, but cars and holidays took priority...

That is maybe is not such a bad thing but it has also removed any urgency to get a holiday job as there is no  financial hunger....

...and as we know, cheap cars are still pretty expensive to run, on an on going basis...