It may seem an odd concept if you’ve not heard of it before, but financial planning for your children through early pension savings is actually an option. Help secure your children’s future right from the very start by teaching them the value of money and how saving money is key to being financially stable in later life.
This does not constitute advice and advice should be sought in all instances before acting on it.
According to HMRC figures, around 60,000 under-18s have a pension plan.
A little can go a long way when saving
You don’t have to pay crippling amounts into your children’s pension pot each month. Just a little bit saved a month can have a huge impact on the total.
You’re providing them with money that cannot be touched until after they turn 55, and giving them an influential introduction to the benefits of long-term saving. Other relatives such as grandparents, aunts, uncles and godparents can also contribute.
A habit to last a lifetime
Saving money is one of the greatest life lessons you can give your children. Watching their pension savings growing each month is an excellent way for children to become money conscious. If they can see funds building it may give them an incentive to continue and may form a lifelong habit.
Tax advantages
The advantages of paying money into your children’s pension isn’t widely known. Because of the tax advantages and the growth potential of the stock market, contributing just a little each month could boost their pension pot. There are a few things to consider:
- Boost their retirement pot
The money you put into your child’s pension fund is given the same basic rate tax relief as if they’d contributed the money themselves. For example, if you were to pay £800 into your child’s personal pension, the government will increase the contribution by 20% – to £1,000.
- Limits to how much you can pay into your child’s pension
The most you can pay into each child’s pension is £2,880 a year. The basic rate tax relief then tops it up to £3,600. If you pay in the maximum amount of £2,880 allowed each year, then by the time they turn 18, their pension would total £64,800, equated by £51,840 in personal contributions and £12,960 in Government basic rate tax relief.
- Higher Rate Tax Relief
Your child can claim higher rate tax relief on some or all of the contribution made by you if they are a higher rate taxpayer. This would need to be done through the annual tax return process and in so doing would reduce your child’s tax bill.
- Reduced Inheritance Tax
By contributing money into your child’s pension, you reduce the size of your estate and could avoid your family having a large inheritance tax (IHT) bill after your death.
Support throughout their lifetime
If supporting your children throughout their lifetimes is something you’d like to look into, then you need to speak to an IFA. Being mindful that investments can go down as well as up and it’s possible you’d get back less than originally invested, your IFA will be able to go through all possibilities with you to make sure you find the right financial plan for you and your family.
Want to start planning for your child’s future?
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