Child pension plans
Why should I invest into my child’s pension scheme?
If you are a millionaire and approaching retirement age yourself with your own financial plan well on track you may wish to consider a pension for your child. There are 3 main reasons:
- Extremely tax efficient – as with any normal pension scheme there is tax relief on the contributions at basic rate and the fund grows almost tax free
- Long term capital growth – the longer the money is left to grow the higher the value it is likely to produce in the long term. Just one payment of £2808 invested for 60 years could grow to a value of around £110,000 which could provide the equivalent of half of today’s state pension
- The fund is not accessible until age 55 – Even though it is their pension they cannot touch the money until age 55 by which time hopefully they are sensible enough to deal with it wisely
How much can I invest in my child’s pension?
Up to a maximum of £3600 gross per year which is £2808 that is actually paid in. With the government paying the tax back that means that up to £64,000 could be placed into the pension over 18 years.
Can grandparents contribute to my child’s pension?
Yes but the money has to be passed to the parents first who then invest it on behalf of their child. As part of our family financial plan we often set up this kind of plan. Grandparent’s contributions can achieve good tax savings and is a very tax efficient method of passing money through generations as part of good estate planning or inheritance tax planning.
What type of pension should I use for my child’s pension scheme?
Usually the choice will fall into either a stakeholder pension or a personal pension. Both are valid types of plan and you should take financial advice from a financial planner or independent financial adviser as it will depend on your own personal circumstances and attitudes.
Why tie the money up in my child’s pension which they cannot touch until at least age 55?
Good question. This can be seen as both a positive and a negative – it depends what you want. If you know you have sufficient funds and income in place to meet their education needs the tax savings in this type of planning should at least be considered. Really this sort of thing should not be tackled in isolation it all comes out as part of a financial plan together with good financial planning.
Any questions on your child’s pension scheme?
Please call us on 01582 839280 or Email us.
