Should Every Child have a Pension?
I remember being a tender 16 years old, just started my first job, being told that I should start my pension and thinking how ridiculous the idea was!
Many of us have had this message repeated by our parents and older colleagues in our first years of work, but it often falls on deaf ears. We are just too busy enjoying our lives to worry about the future and we want the money to spend now! We can’t imagine being as old as Granny & Granddad, and there’s plenty of time to worry about it later anyway.
The incredible power of saving a small amount over the first years of a child’s life can make a huge difference to their future. Starting with a saving of just £10 a month could be worth an incredible £568,000 by the time the child is 55 years old. *
The power of compound interest (this is when interest is earned on interest), the 20% tax relief added by the government, and the fact that the money is locked in until your son or daughter is at least 55 years old means it’s a great way to save for their future.
Anyone can start a pension for a child or grandchild; it’s simple, straightforward, and it’s a low cost way of helping the next generation. Contributions can be as low as £1 and as much as £2880 net of tax per year.
Starting a pension early is an ideal way of helping your loved one to start saving for their retirement, particularly as under current tax rules HM Revenue & Customs will add 20% basic rate tax relief to your payments.
This week I started a pension for my one-year-old son, paying in just £10 a month. This was his 1st birthday present; of course it’s become a big joke in my family, “he needs toys”, they say! I disagree as I trip over more of his plastic creations! I have vowed to make his pension contributions until he’s 16, at which stage, he’ll have the option to take over the contributions if he wishes.
I believe when he is 55, he will remember and value his pension much more than his long forgotten plastic toys.
Plastic toys or a pension, what would you rather give to your future generation?
The final value of your pension fund will depend primarily on how much has been paid in and how well the fund's investments have performed. The value of investments can fall as well as rise, and you may not get back the full amount you invest.
Please note that this article does not constitute financial advice or recommendation. Please contact us should you wish to consult an Adviser.
*Assumes growth at 7% per annum, an increasing premium 10% per annum and tax relief at 20% under current HMRC rules.