Ever thought of buying a child pension plan for Christmas?
Buying a child a pension as a Christmas present may seem a strange idea — think of the turmoil many people approaching retirement are going through today, and you’ll see why anyone who has a self-invested pension plan set up for them as a child will thank you in the future.
They won’t be able to access the money until they turn 55. However, the numbers are impressive: parents and grandparents can gift up to £2,880 and then go on to attract £720 tax relief, so it becomes worth £3,600.
That means parents or grandparents putting £240 a month into a pension for a child can make them a millionaire by the time they’re 60, according to figures from investment group Skandia. By the time a baby had reached the age of 18, the grandparents would have invested £51,840, and with investment growth of 6.5 per cent a year, by the time the grandchild is 60 the pension would be worth a massive £989,994.
Tax-free Junior ISAs
Of course lower figures can also be invested into kids’ pensions, by anyone wanting to gift them £100 for Christmas, say. But there is another option for them to receive tax-free money a little sooner. The Junior ISA sees kids given a tax-free sum when they turn 18. It replaced the Child Trust Fund (CTF), which benefited from a Government contribution, but has far more investment options than its predecessor.
Each child can have up to £3,600 invested in JISA each tax year, as long as they are living in the UK and not entitled to a CTF. They can be invested in cash, stocks and shares or a combination of both. Unlike CTFs, junior ISAs can also be invested via fund supermarkets, such as Hargreaves Lansdown and Fidelity’s FundsNetwork, which provide access to thousands of funds, shares, and investment trusts often at cheaper rates than going direct.
Saving £50 each month, at an average annual growth rate of four per cent, could provide a child with a lump sum of £15,800 after 18 years.
Regular savings accounts
Other savings options for kids include a regular savings account: you can set up a direct debit into these, and by the end of its term it will have grown into a lump sum.
Top rates include Halifax’s Kids Regular Saver, paying out six per cent for a year on deposits of £10 to £100 a month, and Norwich & Peterborough BS, whose regular saver account pays four per cent for the first year, or Bank of Scotland’s 12-month bond, paying 3.25 per cent.