Children's Stakeholder Pensions

You can now save towards your children's retirement with a Children's Stakeholder Pension in your children's name. This is a government backed scheme (similar to an adult stakeholder pension) where you can invest up to £2,808 each year, net of tax, and the Inland Revenue will add 22% basic rate tax relief to this, bringing the total amount invested up to a maximum of £3,600 a year.  This scheme is open to anyone who has a vested interest in the well-being of children including grandparents/godparents and other friends of the family. 

Make Your Child A Millionaire with a Children's Stakeholder Pension
The great thing about starting a Children's Stakeholder Pension is that by starting young, their pension pot will have a huge boost in comparison to those who waited until their working lives to begin paying towards a pension.  Contributions made during the first 18 years of life could be worth more than the equivalent contributions made during the 42 years from 18 – 60*.

The table below demonstrates the benefits of starting a Children's Stakeholder Pension as soon as possible.

Contributions of £3,600 per annum between ages Potential Fund Value At Age 60*

0-16 then stopped £1,230,000

0-18 then stopped £1,310,000

0-21 then stopped £1,430,000

Contributions of £3,600 per annum between ages Potential Fund Value At Age 60*

from 18-60 £659,000

from 30-60 £298,000

from 40-60 £139,000

from 50-60 £50,100

*These projections are based on a medium growth rate of 7% with an Annual Management Charge of 1%, courtesy of Axa Sun Life.

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Tax Relief
The Children's Stakeholder Pension was designed to be as flexible as possible and with no restrictions on stopping or starting contributions. You can pay in a one-off lump or set-up a regular contribution which could be as low as £20 (£15.60 before tax relief) a month.   However, the maximum contribution in one year is £3,600 (£2,808 before tax relief).

In addition to the tax relief on any contributions, the pension fund is free from income tax, which helps it to grow faster. There is also no capital gains tax to worry about, although - providing the rules remain the same - your children will pay income tax when they take their pension.  You could also structure your contribution to suit your inheritance tax planning.  Contact an Independent Financial Advisor for further guidance.

Benefits
The main benefit of opening a pension for children is the huge headstart in life you will be giving them. This means that your children will be able to divert their resources elsewhere (i.e paying for their marriage, starting a family, buying a home etc...) rather than worrying about starting a pension fund.

In addition, the earliest they will be able to access their pension is 55 so your gift will have had a very long time to benefit from stockmarket growth.

Even by making a minimum regular contribution, you can still build up to a significant retirement income. If you paid the minimum contribution - £15.60 - each month and your children kept up these payments until they were 60 the fund could be worth £120,000, which would provide a pension of around £1,800 a year in today's terms.

Disadvantages
While the benefits of seeing your children become millionaires when they retire will clearly be an amazing sight, your children may not appreciate that the earliest they can access this savings is at age 55.  This is a long time to wait to see your investment grow.  Because of this, although Children's Stakeholder Pensions can be an attractive investment vehicle for a child, they shouldn't really be the only one. 

Contacts

Please contact Steve Weisner for a FREE Consultation on how to set up a Children's Stakeholder Pension.

Steve Weisner
Independent Financial Adviser
Radcliffe & Newlands
5th Floor Crystal Gate
28-30 Worship Street
London
EC2A 2AH

Email: SWeisner@myeggnest.com

Tel: 020 7382 0437

Read about Steve

Child Trust Fund
Unit Trust for Children
Children's Tax Exempt Savings Plans (TESPs)
Children's Individual Saving Accounts (ISAs)
Children's Bank and Building Society Accounts
National Savings and Investments (NS&I)

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