Junior Pension - Pensions for children

[SoTiredNeedHoliday]

Has anyone started one for their child? Looking to find out if people think it is a good idea or not. So far I've seen:

• savings that will grow until they are 55 or so depending on when the rules allow it to be accessed
• a way of saving for your kids where they can't touch the money while they're young (when they might not make good money decisions)
• government top up to a certain amount per year

any thoughts?

I think I would probably be more inclined to start savings for them to use when they come of age (eg uni/house deposit) rather than pension. Then make sure I help them understand the importance of financial planning and pensions as they go through secondary school so they are prepared when they start working.

Yes I agree in some ways but then again I hear of so many families where the children just spend the money and make bad decisions.

Once they are 18 an isa or savings in their name is fully under their control.

Its a sad thing to worry about but I would like to be able to ensure they spend the money in a sensible way, not impressing friends or going down a bad path.

Which products does the govt top up?
Aren't you scared about the company offering the product going out of business, and all the savings being lost?

Savings are probably more use than a pension, but if you can afford to do both, I would. (I’m looking into opening them for my kids now). For the first £2880 a year, the gov adds 20% and it gives many more years for the investment returns to grow. I think it’s psychologically good for kids to start life with a pension as well.

We have since DD was born - JISA and SIPP. There is a 20% contribution from the government on the SIPP up to an annual max contribution of £3,600. Ours are both invested in funds with HL rather than cash, given they will be very long term investments.

I set up pensions for both my DC at the start of 2017. They will already have access to several thousand pounds when they reach 18, so I decided to look at something longer term.

I don’t need to go through a financial adviser as I know what kind of fund etc I want, but finding options dealing direct are quite limited. Any recommendations?

HL are good but not cheap. You could have a look here for other platforms.

Sorry what is "HL"
Oublietterbravo, was there any provider that you recommended ?

HL is Hargreaves Lansdown.

I use Fidelity - mostly because they are the company my workplace use as a pension provider (so I already knew a bit about some of their funds).

I would definitely consider a SIPP junior pension in addition to other long-term savings for children.

DD has a S&S ISA and a SIPP, both with Hargreaves Lansdown. Financial gifts and inheritance has gone into the ISA, and I put £24 per month into the SIPP which the government tops up.

With compound interest, the money I'm putting in her pension until she's 18 should be a good chunk by the time she can access it, aside from what she will add to it. I want her to have choices later in life, the kind that you can make with a bit of financial security.

She can use the ISA for house deposit / traveling / car etc. If she wants.

I've enjoyed learning about investing in funds, it's not nearly as complicated and scary as it seems. I like to actively manage both my and DDs savings - and I'm getting a much better return than any cash savings accounts!

MissSueFlay thats exactly the approach I am thinking of

What are the tax impacts on parents starting the junior pension (& or Isa)?

As far as I am aware, and from what I have seen on HL's website here, parents contribute to their child's SIPP out of taxed income. Parents can invest up to £3,600 gross per child per tax year – the taxman automatically pays 20% tax relief (up to £720) so this will only cost £2,880. I have not seen anywhere that you can pay into your child's SIPP by salary sacrifice as well as your own, I would love to know if it's possible though, I may ask HL about it!

Family and friends can also contribute - gifts to a child’s pension are often covered by one of the inheritance tax exemptions and so could fall outside the estate for inheritance tax purposes.

The thing with the ISA is, I'm only using it for the access to investment funds really. It's very unlikely that DD will earn more than her personal allowance (£11,850) before she's 18, so her money doesn't need sheltering in that respect. If there was a cash account offering the same growth as I'm seeing from her funds investments I wouldn't bother with an ISA.

The pension, however, attracts the government contribution, the tax back (or some of it anyway) that I've already paid.

*disclaimer - I'm obviously not a tax adviser!

We have been doing the same as MissSueFlay for a number of years, investing in both a JISA and SIPP with HL.

Initially we moved their building society savings into the JISA (we have saved with HL for years) then also started a SIPP. They are now 18 and 20, and were lucky to be beneficiaries of an inheritance 3 yrs ago, so that is feeding their ISAs and we have increased SIPP contribution a little, will probably increase more at some point. There is no problem with parents still paying directly into SIPP post-18, by the way, unlike ISA which converts to adult ISA on their 18th and needs new direct debit in childs name, and new fund selection setting up. Bit of a pain, we just done it for DD, but once set up its fine.

I too have enjoyed learning to pick funds and invest, was a complete novice yrs ago. Some have not been as good as others, but overall the growth has been very good.

The trick is to drip feed money monthly, into both ISA and SIPP, and into more than one fund, to spread the risk.

As for them wasting the ISA money at 18, well I do think education is the key here, and getting them involved in investing. Mine were 14 and 17 when they heard of their inheritance, almost 6 figures. We controlled DDs until her recent 18th, but DS was 18 when final distribution was made.

We spoke to both at length from the day that they got the estate estimate, saying how fortunate they were, how it would be a good house deposit, how if they wasted it we wouldn't help them. They have both taken it on board and DS doesn't touch it, except to move between accounts each month to feed his ISA direct debit.

DD is just at the start of that task, we are currently setting up new accounts for her, but apart from asking to use a small amount towards a better car (we contributed x amount, she added some) with promise of repaying it from her PT retail job, she isn't touching it. She has finished college and having a gap year, so picking up loads of shifts and has already paid some of car money back, so no problem there.

They have both been keen to get PT work, which I think reflects their attitude to not wasting the inheritance. They could easily have not got work, and broken into it for funds, but didn't. I appreciate that not all 18yo are the same, but education and getting them involved I think is the key. Show them house prices, work out deposits, ask them how long it would take to replace the ISA money if they fritter it away.

Following.
I thought about this when ds was born.
The whole compound interest thing means they will not need to worry about starting a pension, even if you stop when they are 18. ( I may be oversimplifying this & happy to be corrected)

In about 60 years we don't know what inflation will have done, I think it makes more sense investing in in savings to use as a young adult so less time has passed, if our parents had done that a few thousand would have seemed like a lot but not be much by the time we're old enough to access it.

I don't think that would be the case Curly - I think that, even with the maximum contributions parents can make between 0 and 18, the estimated value of the pension pot if no further contributions were made and with 5% growth would be £420k.
That's not an insignificant amount but, as Bounce points out, who knows what inflation will mean it's actually worth - what will it buy etc. in 40-60 years' time?
What it will be is £420k more than they would have had if they only started the pension fund themselves when they started working.

MissSueFlay & Others For the government component below:

"Parents can invest up to £3,600 gross per child per tax year – the taxman automatically pays 20% tax relief (up to £720) so this will only cost £2,880"

How does that work in practice? The parents put in £2880?

What happens if you only put in £1000 for instance, is there still the 20% relief?

Thank you everyone this has been such a useful thread!!

Whatever you put in, the platform provider will claim the 20% tax relief for you. It usually gets added 2-3 months afterwards and will be invested the same way as your original investment, unless you specify otherwise.

You do not have to put in the full £2,880 - that is the maximum amount that the government will add the 20% on.

Onto.

Inheritance tax..... Currently, at any point do the children get hit with any inheritance tax on the pension from parents contributions?

Or by grandparents contributions etc? For instance birthday cash into pension (rather than a gift they don't want).

As I understand it, there needs to be 7 years from when the gift was made for it to be outside of inheritance tax.
I don't know if there's a minimum amount that that would apply to. HL do sell their JSIPP as a way for grandparents to pass on money tax efficiently so worth checking out in more detail if that's an aspect in your planning.

That applies to all financial gifts, not just into a JSIPP.
Personally, I would put birthday money into an ISA. The pension is SUCH a long-term investment, but collecting up birthday money etc. can make a difference to the shorter-term investments which will be used earlier.