Pensions for the DCs - has anyone set them up?

[atticusclaw]

I've been reading about how this can be a good long term method of saving given the effect of compound interest. Has anyone set up pensions for their DCs? Did you do it directly or through an IFA?

Yes. Two of my dc have pensions. The 21 year old and the 12 year old.We did it through our financial advisor.

It looks like its probably worth doing even if we only stick £50 a month in. They can then take them over when they're old enough.

Yes, they did seem like a good option. We also have an isa for the older one - something more accessible for when he gets into the whole housing/rent thing post university.

As I understand it they are simply pensions in the normal way and so can't be accessed until age 55. The benefit is that you have 20 additional years of growth.

Its also something they can't access at age 18 and blow on rubbish. We do also have normal savings for them which carry this risk.

This is something I considered, but my DC were born around the time of the crash and I was very concerned about What happens if the pension company should go under. Does anyone know?

Same as with any pension I guess. There is a degree of risk involved in all investments.

indeed

No investment is 100% but we would rather risk that there is something there.

We have crap pensions too but thats a different issue really.

Well, we're of an age where there really is no point in starting one for DH, other than tax avoidance.
With DC there are years and years for that compound interest to take effect.

Amazing if you can start putting away early. Up to £2,880 net.
For a say 15 year old, £1000 put away now at 6% 'real return' compounded over 50 years would provide £18.4k. Now imagine you did that every year........awesome.

atomicdog the tax advantages shouldn't be dismissed. I don't know anywhere you could put in 80, turn it into £100 and then cash it in. If you're a higher rate payer this is £60 into £100. Depending on you tax position in retirement you could take it out tax free or 25% tax free, 75% taxed. It's like printing money.

According to HMRC only 60,000 kids have parents savvy enough to set up a SIPP for them. So don't all rush all at once or they will shut this down. The combination of tax-free compounding and 20% tax relief on contributions (to max £2880pa) is very powerful. You can set it up for them at low cost via DIY investment provider - eg Sharecentre, Hargreaves, Strawberry. Then you have to find an investment fund that will give them a 'fund for life' so that you don't have the hassle of having to manage it yourself, unless you really want to. Normal rules apply, so (at present) they can access when 55.

PS - I've done this for all 3 kids via Hargreaves Lansdown Junior SIPP, and put in £40 pcm for each, government tops up with £10 pcm. Nice! For the investments, I chose Architas BirthStar Target Date Funds, with a target date as close to their 65th birthday as possible (2046-50) in my case.

mamochkazzzz I expect you're overpaying for this, TER;s are high. Global tracking over this period of time would be just as (if not more) effective.

TER is 0.55% which is cheaper than most managed funds. Sure I could pick up a Global Equity tracker for less - 0.10-20% or so, but I'm not sure I want them to have such a bumpy ride, as also want some diversification across asset classes which means having a basket of different tracker funds.

Once you start thinking about trading costs/rebalancing costs of a basket (check out www.comparefundplatforms.com) you end up paying a lot more than just the headline tracker fees, so I would rather the peace of mind that a managed fund gives without all the hassle of rebalancing etc.

In this case the fund IS a ready-made portfolio of trackers it's just that someone else worries about getting the right mix of assets over time, so that I don't have to - works for me as would rather spend my time worrying about my own pension where there is a little more at stake!

To answer a PP' s question, I believe there is a government compensation scheme (FCSS?) which covers the risk of a pension company going bust and will pay out 90% of the assets saved. So your money is protected to some extent.

Like others, I have set up pensions for my DCs through Hargreaves Lansdown . I did it myself, didn't use an IFA. Even though the DCs don't pay tax, every year you can put in £2,880 and the govt tops it up to £3,600. I select the funds/shares I hold within the pension and trade in and out of investments as I see fit. You don't have to be so pro-active though. As others have said, you can just buy a tracker and forget about it.

When I set them up, the earliest age to take money out of a pension was 55. I've heard this will be increasing to 57 though (and then may increase some more, in line with average life expectancy). So this is not the way to save for your DCs if you want them to access the money any time soon. I'd say it's worth doing if you've already got other savings investments sorted for them / university fees saved etc.

I've heard this will be increasing to 57 though

It will increase in line with the increase to the state pension age, which is firmly on course to move beyond 68 when the link to longevity is implemented.