Children Can Now Have a Pension!

Posted on September 15, 2017

Yes, it's true - you can open a pension for your child or grandchild.

There are various options where a child's pension can be opened and a maximum of £2,880 per annum can be paid in, net of income tax, in a single tax year.

The plan attracts tax relief, boosting the total paid in to £3,600 per year based on a contribution of £2,880. This is a 20% increase worth £720 per annual contribution.

The pension can be opened by anyone who is interested in the child's future. Even godparents, aunts and uncles can open an account as long as the legal guardian of the child is aware that payments are being made.

Under current rules, when the child reaches the age of 55 or retires, the pension becomes available to them. This provides the fund with a lengthy investment period and is a good reason to open one when the child is young.

What are the incentives?

You have years to build up a fund.
Any payments you make receive a 20% increase.
All the growth within the pension plan are tax free.
Regular payments from your income may be ignored for Inheritance Tax reasons re your Estate.
The children's pension is flexible - you have control over the premiums.

What are the benefits to the child?

Funds are not wasted during their youth.
They can add to the pension once they are working.
They can concentrate their funds on other things like a house deposit.
Due to the new pension freedoms rules, they have more flexibility regarding how they can access the funds at 55.

One of our elderly client couples started investing the maximum of £240 per month for their granddaughter. After nine years of contributing, they have paid £25,920 into the plan so far.

The money is outside the grandparent's Estate for inheritance tax purposes, saving them 40% inheritance tax on their Estate when they die (£10,368). The plan is now worth £48,454 and the granddaughter turns 25 this year.

Even if the grandparents stop contributing soon, this is a great fund which will continue to benefit from tax free growth until she wants to access it after age 55.

It's recommended that any plans taken out are regularly reviewed by a qualified adviser over the life of the policy. There are a few companies who can provide a children's pension.

Please speak to one of our expert financial advisers on 0161 785 3500 or email richard.eastwood@pearsonlegal.co.uk to receive advice on which one is best for you.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.