PENSIONS FOR GRANDCHILDREN

MallyGirl

I must have a weird one. She got money at 18 and we have had to encourage her - at 22 - to use some of it to take up a fab opportunity for work experience abroad. 

wjr4

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.

It’s due to the lack of financial education in the country and I’m sure most people age 60+ have been lived in cheap houses and now on DB pensions. It’s not a like for like. 

SarahB16

Exodi said:

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.

I agree with Exodi.  I'm sure your grandchildren will remember you far more fondly thinking you helped them with their deposit for a place of their own or towards their first car which meant they could commute to the job that they really wanted rather than having to rely on public transport and having to take a different job.  

If I were in your shoes I would not provide for their pensions but instead provide them with the funds which will help them when they are so much younger and will actually need it.  If you enable your grandchildren to buy a home of their own they will be in a far better position to make the pension contributions that they need to as they would have likely got onto the property ladder sooner.  

You are opening up so many more opportunities for them by providing them with the funds when they are younger.  

You are a kind and generous person and I know if I was one of your grandchildren and I know having a reliable car or money towards a deposit for a place of my own would mean so much more to me than an extra x thousand pounds in my pension decades later.  

Keep_pedalling

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

Not this old chestnut. Gifts below the NRB are never liable for IHT, IHT comes out of the residual estate. Making gifts never increases the amount of IHT that needs to be paid, if you don’t gift or spend your savings then you guarantee that money will be subject to IHT, if you gift it there is a good chance it will fall out of your estate. 

caveman8006

Keep_pedalling said:

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

Not this old chestnut. Gifts below the NRB are never liable for IHT, IHT comes out of the residual estate. Making gifts never increases the amount of IHT that needs to be paid, if you don’t gift or spend your savings then you guarantee that money will be subject to IHT, if you gift it there is a good chance it will fall out of your estate. 

The point I am making is if your estate is going to exceed the nil rate band, then gifts made out of excess income will be exempt from IHT, even if they are made within 7 years of death. However, to qualify, it is necessary to follow the rules carefully and keep records or else you will end up paying IHT which could be avoided

Albermarle

wjr4 said:

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.

It’s due to the lack of financial education in the country and I’m sure most people age 60+ have been lived in cheap houses and now on DB pensions. It’s not a like for like. 

I somehow doubt that 'most people' age 60+ have a DB pension. I would guess that all the Millions who worked for low pay in small to medium sized companies or were self employed, probably have very little pension provision at all.