Kids pension or ISA....am I doing the right thing?

sgebbie

Hi
Martin made a quick comment on the last show that he'd use an Isa before SIPP for kids....and now I'm not sure if I'm doing the right thing.

The logic was that whatever they do in life they'd have something to retire with.  but now I'm wording if I should change. They've both had SIPPs from birth

I'm 51 with 2 kids, 8 and 4. I  pay in to each of them £100 (£125 gross). Their pensions are currently
4y £11k
8y £26k



Assuming a 7% return...if I never pay into those again they're going to increase to about £1m  .... is that correct?
Should I pay in to an ISA for them instead?...I'm happy to do this if that statement above is correct and they'd have plenty on retirement.

thanks

Baldytyke88

I paid £500 into my 24 yr old daughter's SIPP, which sounds like a good plan to me.

Rheumatoid

I think its good what you are doing but they are likely to want to buy a house before they retire so something they can access to help them with this should maybe be looked into first.

Mark_d

If I had kids and had enough disposable income then I would pay into S&S ISAs for them, so that when they're young adults they'd have enough funds to get a car, go to university, and get on the housing ladder.

Paying in to a pension gives the same tax-free growth as an ISA, but your kids would only benefit by the time they've had decades to build up wealth for themselves.  It is true that you get an amount of tax-relief now...but your kids will be paying at least 40% tax when they eventually retire, so the benefit is not as great as it sounds.

Linton

Assuming you ceased to pay into the SIPP, and depening on when the kids take the money, at 7% I agree with your calculation that the elder one could well have around £1M, the younger one rather less.  Are you planning to at least continue to paying into the younger one's pension to be fair?

However that is in current £s. Inflation at 2.5% could reduce the value by a factor of 4. So  a very useful pot of money but perhaps not completely life-changing.

I assume they are invested at a very high % equity.  

Given that they may not be able to access their pensions until perhaps 60 it could now be sensible to focus the elder one's investments more on S&S ISAs to provide money to help buy a house when they are young or perhaps to retire early.

cloud_dog

sgebbie said:

Hi
Martin made a quick comment on the last show that he'd use an Isa before SIPP for kids....and now I'm not sure if I'm doing the right thing.

The logic was that whatever they do in life they'd have something to retire with.  but now I'm wording if I should change. They've both had SIPPs from birth

I'm 51 with 2 kids, 8 and 4. I  pay in to each of them £100 (£125 gross). Their pensions are currently
4y £11k
8y £26k



Assuming a 7% return...if I never pay into those again they're going to increase to about £1m  .... is that correct?
Should I pay in to an ISA for them instead?...I'm happy to do this if that statement above is correct and they'd have plenty on retirement.

thanks

The comment is probably more about the priority of needs for a young person, rather than from an efficiency perspective.

If you have spare income / capital to support your children then it is likely they will have nearer term needs rather than a huge amount of money in 50 years time.  So, if you are comfortable that you are making appropriate provision for younger life 'needs' then adding to a pension for them is fine, but it the pension is all your provision for them then that could be questioned as to whether that is the best approach for them.

There are obviously many additional factors that need to understood for an appropriate suggestion.  For example, they may come into a large inheritance and therefore the near term 'needs' would be covered under that.

eskbanker

sgebbie said:

Martin made a quick comment on the last show that he'd use an Isa before SIPP for kids....and now I'm not sure if I'm doing the right thing.

The logic was that whatever they do in life they'd have something to retire with.  but now I'm wording if I should change. They've both had SIPPs from birth

It comes down to whether you do what you feel is right for your kids or if you wish to follow what Martin Lewis says he'd do!  His comments should only ever be considered as food for thought rather than a definitive template to follow, as such decisions are complex and personal, so shouldn't be driven by generalisations.

For what it's worth, I'm on his side here, i.e. that the next generation is likely to benefit most from parental assistance to get on the housing ladder early on in life, whereas they have plenty of time (as adults) to plan for their retirement, but both opinions (and many others!) are valid....

sgebbie

thanks all. 
yep, whichever I do the younger will get extra paid in to make him equal

Baldytyke88

Mark_d said:

If I had kids and had enough disposable income then I would pay into S&S ISAs for them, so that when they're young adults they'd have enough funds to get a car, go to university, and get on the housing ladder.

Paying in to a pension gives the same tax-free growth as an ISA, but your kids would only benefit by the time they've had decades to build up wealth for themselves.  It is true that you get an amount of tax-relief now...but your kids will be paying at least 40% tax when they eventually retire, so the benefit is not as great as it sounds.

Except that in a SIPP they get the 20% pension tax relief uplift, at least my daughter did as she is over 18. Do children get the pension tax relief?

AlanP_2

Baldytyke88 said:

Mark_d said:

If I had kids and had enough disposable income then I would pay into S&S ISAs for them, so that when they're young adults they'd have enough funds to get a car, go to university, and get on the housing ladder.

Paying in to a pension gives the same tax-free growth as an ISA, but your kids would only benefit by the time they've had decades to build up wealth for themselves.  It is true that you get an amount of tax-relief now...but your kids will be paying at least 40% tax when they eventually retire, so the benefit is not as great as it sounds.

Except that in a SIPP they get the 20% pension tax relief uplift, at least my daughter did as she is over 18. Do children get the pension tax relief?

Yes, children qualify for the tax relief.

kinger101

Another fan of the JISA here.  Help getting a foot on the housing ladder will mean they can give their pension better consideration earlier on.

The 20 % tax relief ignores that fact that pension income is taxable.