Pensions for adult grandchildren

Lightbulb_Moment6

Hi, we have adult grandchildren which we would like to create pensions for their retirement which is many years away.

We currently have building society accounts for each of them which we pay in £25 per month but believe changing this monthly payment into a pension fund for them would be advantageous but not sure how to start this off or where is best to look. Obviously we will not be around when they become of pensionable age but know that the amount we put away until we are not around will accumulate and be of value to them when they retire.

Many thanks, any advise would be most appreciated.

masonic

It may be more tax efficient to get them to increase their workplace pension contributions (assuming they work) in exchange for direct gifts from your excess income. I appreciate that requires an element of trust that they are actually doing it!

Failing that, if they open a SIPP account, then in some cases you can pay directly into it. Fidelity supports this, I don't know about others.

Catplan

A chance for them to learn?

Why not discuss it with, explain the tax advantages of them adding more? Get them to select a SIPP picking investments as well.

Albermarle

As mentioned, the first question is do they contribute to a pension already ( at work for example)?

Another question is would they not rather have the money now. Young adults often benefit from financial help today rather than 40 years in the future.

lr1277

I have noticed the last couple of years when completing a self assessment tax return, you have to enter a figure for any pension contributions. You probably don’t have to this if your only pension contributions are into your employer’s scheme. This raises a few questions:

Do you or they currently complete a tax return? Will the relevant party have to complete a tax return if making additional contributions? I don’t know so it is worth you finding out.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82065295#Comment_82065295

Its purpose is to adjust your basic rate tax band to reduce any higher rate tax liability. I'm not sure it's really required as it is immaterial if you've remained under the higher rate threshold all year. It's effectively the way to claim higher rate relief through your tax return.

You do not need to complete a tax return just because you (or anyone else) contributes to a SIPP. There is an online service for claiming higher rate tax relief if you are a higher rate taxpayer who doesn't self-assess.

Yorkie1

It is an interesting point though - if X is just into the higher rate tax band, and their grandparent puts money into X's SIPP, presumably the contributions wouldn't affect X's basic rate tax band because it's not X making the contributions? And presumably it wouldn't affect the GP's tax band as it's not their pension?

Whereas if GP gave X the money, X would make the contributions, and it could bring X back into the basic rate tax band?

dunstonh

Basically, you cannot set up a pension on their behalf.

The cleanest thing to do here is to set up a standing order to the adult grandchild for the amount that you want to go into their pension. They then set up a direct debit into their pension. In these days of auto-enrolment, there's a strong probability that they won't have an individual pension, just a workplace one. Many workplace schemes won't take external payments. So they may need to set up an individual one. However, if the workplace pension will accept external payments, especially if it can be deducted from their pay slip, then that is usually the best option.

NoMore

https://forums.moneysavingexpert.com/discussion/comment/82066598#Comment_82066598

No third party contributions like this are still assumed to be based on the recipients tax situation and as such get tax relief based on the recipeints earnings.

Third party pension contributions

Yorkie1

https://forums.moneysavingexpert.com/discussion/comment/82066678#Comment_82066678

Thanks for the clarification 😊.

So the only thing then to be aware of for the recipient is how much is going into the pension overall, so as not to risk breaching their salary-cap / £60K (ignoring carry forward) limit, as appropriate.