Childs pension

[Youseethethingis]

I'm thinking of setting up a SIPP for my 2 year old. He already has a cash savings account and also a JISA, combined value of about £10k. I'm happy to just leave that to grow and FIL pays into his cash account monthly. I think that's plenty to be going on with aged 18 and not necessarily particularly sensible.
I'm now focusing on building my own savings/investments but I'd still like to put something away in DS name, hence have arrived at a junior SIPP.
I'm thinking of moving maybe £1k across from his cash account to get things going then pay in £30 a month from then on.
Where would you put it? Its not a huge amount so don't want it eaten up by fees. Easiest thing would be to just open it alongside his Vanguard JISA but eggs and baskets etc. are holding me back.
Baffled by it all

Honestly @Youseethethingis - I do think talking to a financial advisor would be the best thing. Here on MN you will just get accusations of privilege or stupidity (both of which are ridiculous).

No personal experience of the child pension yet, but some interesting recommendations in this Aug 2021 Times article:

www.thetimes.co.uk/money-mentor/article/pensions-for-children/?amp=1

Indeed. I loved the "privileged" comment, totally ignoring the fact that I'm only in a position to think about this as DS2 was stillborn and the life insurance payout went straight into a S&S ISA for DS1.
Believe me, I'd swap my "privelege" for my baby to be here. Twatty comment.
This thread has not turned out well. I didn't expect to be spoken to as if I'm stupid or accused of not caring about the poor.

It's something we've been thinking about too. They have around £60k of savings each currently invested in St James Place but wondering whether it might be worth transferring half of it to a pension. Following!

I've sometimes wondered whether we should be investing into a pension for DD. This thread (on the whole) has been interesting and a good debate. Thanks For starting it OP, and for reminding me to take a closer look.
And I'm sorry for your loss. It must be a hollow comfort that the insurance payout has enabled you to build good financial security for your other child.

Youseethethingis Ignore that post- there are always odd posts on mumsnet re money. There was a ridiculous thread where a lady had inherited and wanted to buy a nice bag. She got told to buy a memorial bench instead and stop being frivolous.

The only other thing re the child pension I was going to say was look at implications re lifetime allowance. I read somewhere about it and tax efficiencies ie would be better for a high earning 50 year old to be making use of tax breaks for pension than having to stop paying in because the LA had been hit. But, you’re talking a small sum so I don’t think that would necessarily apply but feasibly could for those putting full allowance in each year.

I received some inheritance, so after putting a chunk in my own pension I also put £5000 in a pension for my daughter. I probably won’t be able to add much to that, but when she’s 18 she will take it over and I hope she will see the benefit of adding what she can to it as and when. As far as I’m concerned it’s an incredibly caring thing to do because who knows what the state pension will be like when our children are of that age and I’d like to know that she will at least have something to help her out when I’m long gone.

I’m going to go against the grain here. I’m less worried about my sons pension and more worried about him having a house deposit. I think that’s a more difficult thing to save for given the time frame we’re talking about. Unfortunately, like you said, there is nothing I can put money for a house deposit in that’s in his name that he can’t get when he’s 18 so I’ve kept that money in a separate account in my name so we can gift it to him when he needs it. My son does have some money in his isa for when he turns 18 so hopefully he’ll be smart on not fritter that away in a week.

I'm looking to do the same op. Dd is 4 and has a small amount in jisa that will be about £4k when she hits 18 and I don't want it to be any more than that. I'm looking to out the bare minimum (plus the odd lump sum of say £100 if it happens) into a junior pension with the idea that she can 'explore' a bit in her 20's knowing that she has a head start for later in life.

So far I gather fidelity and vanguard have junior sipps? I have no interest in picking stocks, I want something managed. Can anyone add to the list of options I can explore?

Its a very good long term savings habit to kickoff for your DC if you can afford it. I would rather that then a huge balance in the JISA - the money moves into child's control as soon as they turn 18 and they can spend it on whatever they like, regardless of what you thought it might be for. For this reason we save most money for driving lessons, university etc in our own names.

I have recently done the same for my 6 year old. She has a Junior SIPP with Fidelity as zero platform fees. I pay in £30pm and it is invested in Vanguard Lifestrategy 100%. Too good an opportunity to miss with the tax relief and long term growth opportunity.

She also has a JISA which we are not maxing out for the same reason as you - we want to cap the max amount she’ll receive to use as she chooses at 18.

Money to the masses podcast did a millionaire special on this subject, discussing how much to put into a pension to make your child a millionaire in retirement. It's a really good episode if you want to seek it out.

Btw just wanted to say thank you to those who have mentioned fidelity. I’m seriously looking at the junior sipp again. The lack of platform fees combined with the additional government money seems like quite a good deal.

@D00r2D00r2

Am I missing something ?

Why would anyone pay into a child pension, unless they are rich ?

Does a child pension attract the same tax relief that is added for adults ?
Obviously no contributions added by an employer

If you are paying into a child pension, then I assume
You have no debts, including mortgage ?
You have your own private pension ?
You have your own savings, if you lost your job ?
You perhaps pay into a child ISA for future things like further education, property purchase, wedding ?

I assume that the child pension will not be accessible until the earliest 55 or older ?

What is the reason for paying into a child pension?

I'm not rich, not debt free, still have a mortgage but I've been paying £20 a month into a stakeholder pension for both DC for about 4 years now. Why? Compound growth Get tax benefit of £5 per month DC won't be able to touch until they are 55 (though rules might change) It makes me feel good When they are old and I'm long gone they'll know I thought about them in their old age and tried to provide for them.

Worth remembering that they will get taxed on it the other end. You can only take 25% tax free, and that could easily be cut over the next 5o odd years. Rest they will be taxed on their marginal rate. The taxman giveth and the taxman taketh away.

True but I don't let the tax tail wag the investment dog. Who knows what the rules will be in the 2070s when my son will turn 60 but he will have a big chunk of change as a cushion and safety net.

My DH and I have a massive pension pot and haven’t found the tax too bad, we have an advisor who’s helped us minimise the tax we pay.

Exactly. Usually a pension is taxed at a much lower rate because people reduce their earned income at retirement.

Also it's very possible that as our government can barely afford pensions now and is up to its eyeballs in debt they'll incentivise the pensions that people hold by changing the rules in their favour (and away from state provision). So the tax and access rules might be better (and not worse) than now.

Crumble

Care to share some of the tips? What did he/she do to minimise your tax?

Have a general investment account
Then any withdrawals are using the capital gains tax

@crimble
That's interesting can you explain in a little more detail please?

I think that this is fab and a wonderful thing to do for your child. I'd love to start the same for my baby but I'm living in Ireland and it's unfortunately not an option here as far as I know.

@Youseethethingis

Indeed. I loved the "privileged" comment, totally ignoring the fact that I'm only in a position to think about this as DS2 was stillborn and the life insurance payout went straight into a S&S ISA for DS1. Believe me, I'd swap my "privelege" for my baby to be here. Twatty comment. This thread has not turned out well. I didn't expect to be spoken to as if I'm stupid or accused of not caring about the poor.

I'm so sorry for your loss.

Please no offence intended but can I ask how your life insurance paid out as I thought it was unusual to have life insurance for children. Especially one not yet born. I only ask as one of my DTs died shortly after birth. I was told sometime after that I could have applied for child benefit and therefore got a child trust fund but was not in a good place to deal with all of those things and that ship had sailed by then.

If this is something I could revisit I would love to be able to provide something for my DT future.

Thanks and once again so sorry for your loss.

OP, I am really sorry for your loss. I am not aware that it is possible to get life insurance on the life of an unborn baby. I apologise if I misunderstood.

I started SIPPs for my DCs when they were in primary school, so I could give them as 21st birthday presents. (I'm a long-term planner!) I used Hargreaves Lansdown because it was one of the few that did junior SIPPs then and has a massive selection of funds. The fees are not the cheapest though, so if I were doing it now I'd look at Fidelity, BestInvest, A J Bell etc.

Because they are very long-term investments, I selected funds at the more risky end of the profile (technology; emerging markets; China).

I initially put in a lump sum and for a few years put in the odd £500 here and there, making £6k investment in total. Fifteen years later, they are currently sitting at £27k each.

So I think that's a good lesson for the DCs on the value of saving and the power of the stock market/compound interest/tax rebates. When they turn 21 they have control over the investment choices and can make their own further contributions, should they wish.

Nowadays there are also Lifetime ISAs (LISAs) which can be accessed for two purposes - as a deposit for a first home or 10 years before state pension age, so for some that would be a nice alternative to setting up a pension. However you have to be age 18-39 to set one up, so your DS is too young for one yet.

Sorry, this sounds like a bad idea to me. I don't think it makes any sense starting paying money into a pension scheme before the child is a taxpayer. By all means save, and get the benefit of compound growth. But switch the money into a pension once the child starts paying tax to get an large free uplift at that point courtesy of HMRC.

In other words you can still save and invest and build up the beginings of a substantial pot. Let's say you've accumulated £40k in a SIPP by the time they start work: that's pretty impressive, and they can then start adding to it from their wages. But if you'd saved it outside a pension you could now transfer it into a pension over their early years of taxpaying and turn £40k into £50k just because they now qualify for tax relief.

Exact figures depend on the tax regime at the time, and the person's earnings. But even if the entire concept of pension tax relief has been abolished by then you're no worse off.