We are looking for a long-term savings plan that will benefit our children. We already have a Child Trust Fund for both of them, but I have heard that we could start a pension for them, too?
Starting a pension for your child is a relatively economical way to get them ahead in life. By the time most people start saving into a pension, your child will already have had two decades of contributions and investment growth on their pot! An alternative to traditional forms of children's savings, which often allow the money to be accessed by the child at the age of 18 or 21, a pension can't be accessed until the more "sensible" age of 55, which can provide some comfort that your hard-earned money won't end up going towards a blow-out holiday in a notorious resort!
so, if pension provision is how you'd like to help your child financially, here's a rundown of how a child's pension works, and some key things for you to bear in mind…
Children's stakeholder pensions work in much the same way as a stakeholder pension that an adult may take out, although there are some obvious differences between the two.
Normally, the stakeholder pension is started by the child's parent or legal guardian. After the pension is open, it'll allow parents, grandparents, other family members, godparents and even friends of the family to invest money into the pension.
Neither you nor your child will be able to access the pension until they reach the age of 55 – and that's under current rules.
The first £2,880 placed into your child's pension per tax year benefits from tax relief at 20% (even if you're a non-taxpayer!). So, if you contribute the full annual limit of £2,880, tax relief will swell your child's pension pot by £720, to £3,600. Or, to put it another way, for every £100 invested, the child actually gets £125 placed into their pension!
You can contribute further sums in addition to the £2,880 limit, but your child will not get any tax relief on this.
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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
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