SWT Wealth Management
Advertising feature: A child can have a pension from birth – there’s no minimum age. Only a parent or guardian can open up a pension for a child, but once it’s up and running, anyone can contribute.
Like an adult’s pension, contributions receive a 20% boost from the government – even if your child is not yet a taxpayer. This tax relief from the government is something you won’t get from an ISA, another tax-efficient saving tool. In addition, any growth generated by the pension won’t be subject to Income Tax or Capital Gains Tax.
If you’re the child’s parent or guardian, you’ll look after their pension until they turn 18. At that point, control passes to them. But they won’t be able to access their pension until they reach age 55, which is rising to age 57 in 2028.
How much can you pay into a child’s pension?
One key difference between an adult’s pension and a child’s pension is the amount you can contribute each year. You can pay up to £2,880 into a child’s pension for the 2023/24 tax year. When you consider the 20% in tax relief from the government, this adds up to £3,600.
While the annual contribution limit for children is much lower than that for adults, the magic of compounding means even small contributions can add up over the long term.
How will your child benefit from a pension?
Saving into a pension for your children can ease the pressures they face as they enter adulthood. For example, they can focus on things other than retirement planning when they are just starting out in their careers and facing the costs of starting a family and buying their first home. Starting a pension early also may help to boost their understanding of tax relief and the value of saving.
Are there other ways to save for a child’s future?
Starting and contributing to a child’s pension isn’t the only way to save for their future. A Junior ISA (JISA) is one of the more popular choices.
A JISA must be opened by a parent or legal guardian, but after that, anyone can contribute up to the age of 18. As with other ISAs, any returns won’t be subject to Income Tax or Capital Gains Tax. Another benefit is that by gifting money to children, you’re removing money from your own estate, which could help mitigate IHT or reduce the amount payable when you die.
As of the 2023/24 tax year, you can contribute £9,000 per child into a JISA each year. Keep in mind that the tax benefit that comes with ISAs is one that you have to ‘use or lose’ – you can’t roll it over into another year.
Taking financial advice will help you put a plan in place – so you can find the right balance between paying for your children’s needs now and saving for their future.
We can also check to make sure you’re in a good financial position yourself. Before setting up a pension for your child, you should have a savings safety net and protection, and be certain that you’re saving enough for your own retirement.
To talk about the best ways to invest for your children’s future, get in touch.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
SWT Wealth Management is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.
To find out ways we can help visit: www.swtwealth.co.uk or contact us on 029 2252 0168 or 07946183512
SJP Approved 28/04/2023