Pensions for children are one CTF alternative

With the end of the Child Trust Fund in January 2011 drawing ever near, there has been a barrage of new ideas and products that have recently come out on the children’s savings market. One of these is the self-invested personal pension, or SIPP. The plan allows you to control where the investment goes, and though not a new concept it is only now that an increasing number of providers are offering them aimed at children.

Even though making regular payments into a pension plan for a child may seem obscure, the flexible nature of SIPPs along with the tax relief make them a straight-forward way of securing a comfortable future for your children. For every £80 that is deposited, the Government raises it to £100. The money then grows in one of the most tax efficient ways to save for the future and is independent of your own pension plans, which are unaffected.

Steve Weisner, independent financial adviser at Radcliffe and Newlands, said, "Due to the long term nature of investing in a pension for your child, the earlier you start the better. However having a proper investment strategy can have a phenomenal difference with the compound growth effect over such a long time. For example investing £100 per month into the pension fund of a one-year-old at a 7 per cent return could give a pension fund of around £1,000,000 at age 65, but a 5 per cent growth only gives a fund of £416,000, whereas a 9 per cent growth rate gives a fund of £2,470,000."

Some believe another advantage is that the child has no access to the money until they are at least 55. Natasha Terbraak of MyEggNest.com said, "Many think the long term nature of a pension will prevent the savings from being spent frivolously as was often the risk with CTFs, which could be accessed by the child at age 18."

However, Steve Weisner added: "SIPPs may be available for a child’s pension but would generally be an expensive option and only appropriate for a knowledgeable investor. For the adult market these are mostly used for clients with funds in excess of £100,000 or making very large contributions, but contribution levels are restricted for children to £3,600 due to their lack of earnings. There is nothing to stop someone transferring their funds to a SIPP at a later stage once their fund has increased in size and a personal pension with a good fund range should be more than adequate in virtually all cases."


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