Starting a pension fund for adult children

Caeraugirl

My children are both in their early 20's and are currently both undertaking postgraduate study for at least the next two years.

They both work part time, one on a "Bank" contract and the other in a small company, to support their studies.

They're both back at home for another year at least, and we already help them financially where we can, but as we're approaching the other end of our working lives, we know the importance of a good retirement provision so wanted to start them on the pension ladder asap.

We were thinking of setting up a pension fund with Vanguard, with their consent, and paying £50 a month in for each. Once set up, we'd hand the account to them to make additional payments as and when, alongside any company pensions they would hopefully be contributing to in future.

I just wondered if there were any obvious downsides to this plan, or if there's something else we could do instead to help them prepare early for retirement?

jimjames

You can't open the pension for them but they can open one and you can pay into it although it might need to be via a bank account in their name. Vanguard might not be the best option for £50pm as their fees are £48pa until you have around £32,000 in the account. A percentage provider might be better initially.

Exodi

You understand that you're suggesting you should be setting up an account for them, in their name, with their details? They should be doing this.

Once set up, they would click invest then select third party which would send the request to your Vanguard account. I haven't personally used this option, but I believe they'd select the investments, and the third party effectively just gets the bill. From the sounds of it, you'd effectively want access to both accounts to facilitate this.

Personally I think you shouldn't have access to any of their financial accounts as adults. Really you should send them the money and (after you teach them about pensions and investing) they add it to their account themselves. If you don't trust them, then ask for statements as a condition.

Vanguard wouldn't be a great option as they have quite oppressive fees for starting out (0.15% or £48 per year, whichever is highest) - that would be a platform fee of 4.8% on £1000 which is insane. It's only 0.15% on account balances over £32k. There are other SIPP providers that charge less (or even free, e.g. InvestEngine).

Isthisforreal99

You will need more than their consent, their NINO for one. Let them be the adults they and let them decide where/how to invest it.

Chances are they will buy a property at some point and that cash is tied up until at least 57.

Marcon

Caeraugirl said:

My children are both in their early 20's and are currently both undertaking postgraduate study for at least the next two years.

They both work part time, one on a "Bank" contract and the other in a small company, to support their studies.

They're both back at home for another year at least, and we already help them financially where we can, but as we're approaching the other end of our working lives, we know the importance of a good retirement provision so wanted to start them on the pension ladder asap.

We were thinking of setting up a pension fund with Vanguard, with their consent, and paying £50 a month in for each. Once set up, we'd hand the account to them to make additional payments as and when, alongside any company pensions they would hopefully be contributing to in future.

I just wondered if there were any obvious downsides to this plan, or if there's something else we could do instead to help them prepare early for retirement?

The idea is excellent, but possibly not quite the way you are currently considering.

If they are employees, they will have access to an employer pension scheme - and can ask to join it even if they aren't earning enough to be automatically enrolled. The will qualify for employer contributions if they:

• earn over £10,000 a year
• and are aged between 16 and 21 or between State Pension age and 74

or

• earn above £6,240 and less than £10,000 a year
• and are aged between 16 and 74

'They' will need to contribute, which could be where your parental contribution comes into its own! You give them the cash, they pay it to their employer's scheme by deduction from salary.

If that route doesn't work, then they (not you) could open a pension scheme - could be a SIPP https://www.moneysavingexpert.com/savings/cheap-sipps/ but not necessarily. See https://www.money.co.uk/pensions/personal-pension-plans/pm-1?track=885118&inset-cookie-banner&utm_accountid=3115971200&utm_source=google&utm_medium=cpc&utm_term=personal%20pension&utm_cmpid=11661682012&utm_adgid=112076440023&utm_tgtid=kwd-27284611&utm_mt=p&utm_adid=494033438594&utm_dvc=c&utm_ntwk=g&utm_plcmnt=&utm_locphysid=9045711&utm_locintid=&utm_feeditemid=&utm_devicemdl=&utm_plcmnttgt=&gad_source=1&gad_campaignid=11661682012&gbraid=0AAAAAD_WA_hbfz200IVmT7Siib1epPH-B&gclid=Cj0KCQjw8p7GBhCjARIsAEhghZ3QTYYMmv1V8W1Snag_rrmNC6_hJGlVL0k-KCGnVc_LzwaAiSP78MAaAob7EALw_wcB

Again, give them the cash to pay into it - not all schemes accept payments from third parties other than an employer.

Caeraugirl

Thanks @jimjames @Exodi @Isthisforreal99 and @Marcon for your replies, and for your helpful information / feedback.

I can see I was being naive in thinking I could just set up something then hand it over to them, but that's why I asked the question. I guess my best approach is to gently nudge them towards setting up their own...

mamashaz

With the help of our financial advisor, pensions were set up for our adult children with the Prudential. We pay into them in each month. The pensions are their own but, at the moment, only the parents are paying into them.

Might be worth talking to a financial advisor

Marcon

mamashaz said:

With the help of our financial advisor, pensions were set up for our adult children with the Prudential. We pay into them in each month. The pensions are their own but, at the moment, only the parents are paying into them.

Might be worth talking to a financial advisor

Not sure why an adviser would be needed in OP's case. The adult children can easily set up their own pensions if they wish.

QrizB

When each of my spawn reached 18 I persuaded them to open a pension (in our case, with Vanguard; other ension providers are available). I then set up a standing order to transfer money to them once a month, and I asked that they set up a matching DD with Vanguard to transfer it into their pension.

I'm mostly taking it on trust that they've actually done this and aren't spending it on whatever youngsters spend their money on these days

I'm thinking I'll stop the payments after five years, by which time they'll each be 23, out of uni and (hopefully) gainfully employed.

DRS1

QrizB said:

When each of my spawn reached 18 I persuaded them to open a pension (in our case, with Vanguard; other ension providers are available). I then set up a standing order to transfer money to them once a month, and I asked that they set up a matching DD with Vanguard to transfer it into their pension.

I'm mostly taking it on trust that they've actually done this and aren't spending it on whatever youngsters spend their money on these days

I'm thinking I'll stop the payments after five years, by which time they'll each be 23, out of uni and (hopefully) gainfully employed.

So you're giving them £240 pm?

QrizB

DRS1 said:

QrizB said:

When each of my spawn reached 18 I persuaded them to open a pension (in our case, with Vanguard; other ension providers are available). I then set up a standing order to transfer money to them once a month, and I asked that they set up a matching DD with Vanguard to transfer it into their pension.

I'm mostly taking it on trust that they've actually done this and aren't spending it on whatever youngsters spend their money on these days

I'm thinking I'll stop the payments after five years, by which time they'll each be 23, out of uni and (hopefully) gainfully employed.

So you're giving them £240 pm?

Good guess

It could be less than that, of course, eg. £50 like the OP. But not more (edge cases excepted).

I'm also paying them their parental contribution to top up their student loan - kids are expensive ...