Starting a private pension for adult children

[ApiratesaysYarrr]

I'm an absolute financial noob, but I am a well paying job which is essentially a lifelong job (NHS) and anticipate working for approximately 13 more years before retirement. I reached this level relatively late in life compared to my peers, and didn't come from a family with money so this sort of thing has never been something on my radar.

My children are adults (one late 20s, one early 30s) and will never achieve the level of income I have.

It occurred to me recently that I could help them by paying into a pension for them as well as giving them the intermittent cash that I do occasionally (mostly birthday /Xmas/wedding).

I know I should have done it years ago, but would love to know how others have done it. Is there a minimum/maximum payment per month? I'd anticipate paying while I am working (so 13 years) - I guess it's still worth it, but what would happen if when I stopped paying they didn't take over payments or reduced payments? I assume that they would need to set it up, but is there a way that the payments come directly from my bank, even though it's their names as adults?

Be gentle with me, please...

You need to speak to a financial adviser for proper advice. I assume as you are a high earner that you already have one.

Do you think they need extra money now - or in the future?
Would paying for their kid's swimming lessons or a monthly grocery voucher make a difference to their lives now?

You could look at a Lifetime ISA (LISA) which is payable from 50. My private pension is only payable from 57.

I think it’s a great way to help your children. Look into opening a SIPP

got this from the internet:

Yes, you can pay into a Self-Invested Personal Pension (SIPP) for your adult children
. These payments are generally considered "third-party contributions" and are treated for tax purposes as if the child had made them themselves.

Tax Relief Benefits

• Automatic 20% Boost: When you contribute, the government adds basic-rate tax relief (20%) directly to your child’s SIPP. For example, if you pay in £800, the government adds £200, making a total contribution of £1,000.
• Higher Rate Relief: If your child is a higher-rate (40%) or additional-rate (45%) taxpayer, they can claim back an additional 20% to 25%through their own self-assessment tax return.
• Contributor’s Tax: These payments do not reduce your own tax bill; the tax relief always benefits the person whose pension it is (your child).

Contribution Limits for 2025/26
The amount you can pay in is limited by your child's circumstances, not your own:

• If the child is working: You can contribute up to 100% of their relevant UK earnings, subject to a standard annual allowance of £60,000.
• If the child is a non-earner: You can still contribute up to £2,880 net per tax year, which becomes £3,600 gross after tax relief is added.

Inheritance Tax (IHT) Considerations

• Removing Assets from Your Estate: Gifting into a child’s pension is a way to reduce your own future IHT liability.
• Annual Exemption: You can use your £3,000 annual gift allowance to make these payments.
• Surplus Income Exemption: If the payments are made regularly from your surplus income and do not affect your standard of living, they may be immediately exempt from IHT, regardless of the amount.
• Seven-Year Rule: Large one-off gifts above your allowances are usually "potentially exempt transfers" (PETs) and only become fully tax-free if you live for at least seven years after making the gift.

Important Note for 2027
The UK government has announced that from 6 April 2027, most unused pension funds and death benefits will be included within the value of a person's estate for IHT purposes. While this does not affect the tax-free nature of your contributionstoday, it may affect how your child's pension is taxed if they pass away with funds remaining.

Why do you think they’ll never earn what you do? Did you have an idea what you would be earning in your 50s when you were in your 20s?

If you open a SIPP for them now it's got 30 years to grow. So even if you only put in for a few years it would be worthwhile. Check whether they have one already though, my DC in their 20s have SIPPs.

The earlier you start the better with pensions, even if its modest contributions, compound interest over decades does the heavy lifting.
I read recently, as we’ve just started pensions for our teens, (I wish we’d done it from birth!) that £2880 from birth - 67, at a conservative 5% growth rate will give a 1.5M pension pot…

If they have no income at all £2880 is the most that can be contributed a year. Otherwise you can only contribute to total earnings, theirs not yours. It’s well worth doing, particularly if the children are young and you don’t want them running wild with an ISA windfall at 18, but obvs yours are older and hopefully wiser OP!

I pay into a pension (sipp) for my 5 and 6 year olds. I can pay a max of £2,880 a year as obviously they don’t work (although i don’t pay in the max). You don’t need a financial adviser. As they are adults, you will need to do it with their consent. Loads of platforms of sipps, it’s easy to set up

My new employer is peoplespension. I’m nearly 55 and in the balanced default fund. I know they have limited funds. I am not averse to risk even at my age. Has anyone gone from the default to a higher risk fund and found they got better returns. What are your recommendations?

I have LISAs for my adult kids so they can use for a house deposit or a pension

What would people advise to set up for teenagers not yet 18?

If it’s a Junior Sipp you want, there are only a few platforms offering these. These include Fidelity, Hargreaves Lansdown, AJ bell or Bestinvest. Each has different pros but something to consider is how much you want to pay in, as with Fidelity you have to pay in a minimum lump sum of £800 (I believe). With Bestinvest it’s £50. But if you want to pay in regular amounts, I think they will start from about £20 a month.

If not used for a house purchase, LISAs can be withdrawn without pebalty from 60, not 50.

OP, if your children are working they should be enrolled in their workplace pension. Contributions to this will count towards the annual allowance posted by a PP, so you won't be able to contribute the full amount. The allowance also includes the tax 'refund' so you also need to deduct that from your allowable payments.

If they don't take over payments when you stop, the 'pot' just sits there - hopefully increasing because the funds it's invested in should increase - until they start drawing on it. There's no commitment to keep paying permanently. They can add occasional lump sums to it, set up regular payments, or pay nothing.

My children are still only eight and five so not quite the same as what OP asked, but I have opened Junior SIPPs for them with AJ Bell.

When I set them up I had to link each one to a current account. They are linked to mine. I can set up a direct debit so that regular payments are taken from this account, or I can make one-off transfers in either by bank transfer or by debit card.

It's the same for my own adult SIPP, but for all of them when setting up regular payments I have to declare that the linked bank account is operable with my signature only. I assume this would be where you might have trouble with adult children and linking it to your own account.

If you were to fund an adult child's SIPP from your own current account I imagine that it would attract money laundering questions if nothing else, and it may not even be possible. I know, for example, that I cannot pay into my wife's ISA from my own account - I send her the money and she pays it in herself. One way around it might be to send the money to your DCs first, so they can pay it in to a SIPP from their own accounts.

You can - we’ve very recently set up pensions for our kids, over 18’s. There wasn’t any questions about the account the money was coming from being a different name. Ours is being paid from a business account too so not even the same surname… which I agree is odd when virtually every transaction now has a money laundering safeguard!
I thought we’d probably have to pass the money to child, and they pay it like their ISA’s but no, apparently not!

user6386297154
Do you mind revealing who the pension provider is?
I have contacted a few pension providers and the general answer is it cannot be done.
However, doctor Google says differently.

Hi OP.

You can't open a pension for them- they have to do that themselves. You can however make contributions into a pension that they have opened. NB tax relief will be at their marginal rate not yours, so this may not be the best way of doing things if they are basic rate taxpayers and you are higher rate. The contribution limit is also based on their salary rather than yours.

It's a lovely thing to do but worth having a chat with them about it and coming up with a plan together. For example, if they are short of money now then they may prefer something they can actually access (and may even be tempted to stop their own contributions which could well work out worse overall). Even if they don't need access now there may be arguments for using an ISA rather than a pension- all depends on their specific circs. (For ISAs you will need to give them the cash as you can't make third party contributions.)

From what you've said it sounds as if these will be regular gifts from excess income, which means they won't be subject to IHT, but make sure you keep really good records.

I set up a pension for DS when he was 5 ( he’s now 20). The contributions did and still do come from my current account and there’s no change other than that he now controls which funds they reinvested in. I’m planning to keep contributing (it’s not the max) even though he’s now working as it all helps with the compound interest. He’s now got an employer pension that he pays into.