Setting up pension for a toddler

[IVFbeenverylucky]

Within a few weeks I will have three pre-school age children. I read very recently about how parents could set up a pension plan for their kids, which the kids would not have access to until they are 60. I won't be able to contribute much to this - certainly no more than a few hundred pounds until they are in school and not much more afterwards (I have to think of my own pension lol). It's more a way of getting it started so there's something there, than for serious money. Does anyone know how I begin? Bearing in mind the contributions will be very modest I obviously don't want their to be lots of fees and things, and it's really important to me this is pension, as distinct from other savings they could access at 18 etc. I'm not money savvy at all. Just have a plain bank account, earn money, spend money etc!

https://www.sjp.co.uk/news/should-you-start-a-pension-for-your-child#:~:text=Only%20a%20parent%20or%20guardian,power%20of%20compounding%20at%20play.

Investing in your own retirement is likely to be much more valuable for your children than a few hundred £s in a pension fund.

We did the same for our DS when he was born and now at 22 it has built up into quite a decent pension pot .. and we didn't put in huge amounts. We already had an IFA so he helped us set it. I don't think you can avoid any fees at all.
Do bear in mind that the money cannot be accessed for many years so you may need to make sure you have separate savings for Uni, car or whatever is important for your family's future.

FFS that's interesting but why would it not be a good idea to invest modest sums in a future pension for your DC? Assuming you are not living in poverty or avoiding saving for your own pension? Genuinely interested.
Both DH and I have saved for our own pensions as well as our DS's (& we are absolutely not Mumsnet 'high earners' ) and have both been able to retire early.

Thanks both. It's not instead of other savings (although at the moment nursery fees prevent real saving of any sort!), but more of a principle to start good habits for the future for me and them. I will definitely not be prioritizing their pensions above mine, but a few hundred quid to get it going and get into good habits is not going to affect my pension.

Probably a stupid question, but are payments made into my kids pensions tax deductible from my income, as payments for my own pension would be? I presume not?

You won't get much in the way of employer contributions, unfortunately.... 😄

Seriously, you need to have some perspective. The first two big financial burdens faced by your your child will be a) further education and b) house deposit or other housing costs once they move out. These are substantial.

You should consider saving with those in mind, rather than locking the money away in a pension and risking them being unable to access it when they need it earlier in life.

If they get a job with a good pension scheme, they'll receive employer contributions from Day One, and that's the time to encourage them to beef up their own payroll contributions, since the employer will often match those (up to a point).

Children's savings accounts often have good interest rates. Check on money saving expert or moneysupermarket for the latest.

You might do better getting this thread moved to the Investments board. But the short answer is that it's a great idea - compound interest will work hugely in their favour over such a long term.

Keep it simple and look for low fees (so not St James Place :-) ). For a small pot an percentage fee will be better than a flat rate. They or.you can move it to another pension scheme when they are older if it gets to a size where a flat or capped fee is cheaper.

Vanguard is a popular one - easy and cheap, with ready-made pension funds so you don't have to build.your own portfolio - but a look on https://www.moneysavingexpert.com/savings/cheap-sipps/ will show you fees and features for several similar options.

@Squiblet
Higher education is something I can comfortably save for once they are in school. With three sets of nursery fees (soon - DC3 not here yet), saving generally is not high on my list right now.
House deposit is a much harder one - my parents were incredibly generous and I will not be able to help so much as that and it's a worry - but the amounts that I am talking about putting into a pension scheme are not going to make much of a difference there anyway. I suspect that I will downsize myself to free up capital for that one, but as my eldest is only 2, I'm not stressing too much about that. I really am talking about maybe £500 per child per year, perhaps going up to £2,000 when they are all in school (still about 5 years away).
It's not going to make a huge difference to any of the other good things I could and should be saving for for me or them.

@BinturongsSmellOfPopcorn Thanks so much.

are payments made into my kids pensions tax deductible from my income, as payments for my own pension would be? I presume not?

You presume correctly. They get their own tax relief (so for every 80p you put in they get £1), but it won't reduce your tax bill. https://adviser.royallondon.com/technical-central/pensions/case-studies/3rd-party-contributions-saving-for-future-generations/

I agree that the 'principle' of investing / saving into a pension scheme is something that personally I feel is very valuable. We invested the equivalent of the child benefit in our DS's pension, so about £60 a month (I know there's a huge argument that therefore we shouldn't have accepted the CB but that's not a discussion for this thread). He has now finished Uni and about to start his first graduate job and has already got a decent pension pot.
You sadly read about so many people who don't have a pension that for us, this was the right thing to do, other people will have different priorities.

@IVFbeenverylucky

Obviously there are, as PP's have pointed out, other ways of saving for your kids/grandkids. Something for when they're 18-25 when cars, house deposits etc are to the fore is one thing. Maybe both 18 and 25 as the first might be pi**ed up against a wall at Uni.

My Mum did something to cover the above but also set up pensions for all 5 grandchildren. Policies were with SJP as her own investments were with them. IIRC she put £500/year in and tax on that was added back. IIRC she was still adding it until she died by which time both were working adults with long term partners - DD had own home in Torpoint.

Clearing out over the weekend I found statements from the period I received them as the kid's guardians. The amounts in them were, within ten years, well over £10k so probably at least double now. Kids could pay in spare cash now if it seems OK to them; easier than running round to set up a new policy.

Biggest difficulty has been getting adult kids to understand (a) what the product is and was for and (b) how to get it into their own names now they're adults. They were written to by the policy co, Clerical Medical at 18. However 18yo's being what they are, and DP and I being too laid back to stand over them like my sis did with her three, it never happened.

DD says she tried but was told that they could only speak to the person who set up the policy!!. That would have been difficult as by that time she's long been scattered around the Lakes and Scarborough!!

My kids have got pensions and I regret waiting til they were in secondary school.

I think the research I read suggested that every £1 in a pension would be worth £14 on retirement if it had been put in before they’re 20 - but a £1 put in when they’re 50 would only be worth £2 because of compound interest. I might have got the figures wrong but there was a massive increase.

Dc also have a current account and savings account, and I might set up an ISA.

They currently have a SIPP pension with fidelity. I read a few reviews and until they’re 18 there are no fees to have the pension and there are no fees to buy / sell most funds too. I put in about £100 a month - and the government add 25%.

My only drawback is the complexity of funds available and choosing them. We’re only talking small amounts at this stage but so far dd1 has made 2% in 6 months and dd2 has lost 2%. We haven’t invested all the money in the pension into a fund, the money not invested gets 3.25 % interest.

My only drawback is the complexity of funds available and choosing them
This is my biggest problem. I really need to keep it super simple.

Fidelity have hundreds of funds to choose from but they do have a top 50 recommended and lots of information on how they’ve all grown.

I take the view that in time they’ll probably all grow and if it were a workplace pension I’d probably only check once a year so I probably do need to relax and not check every week.

We’ve bought funds in japan, USA, Europe (not UK) so i see it sort of as a maths/ geography/ economics/ politics lesson with two neurodiverse kids who would spend any money I gave them at 18.

I have heard on multiple podcasts that global index trackers do well so you can probably keep it more simple than how I’m doing it.

The investments can be very simple and because they will have 6+ decades in the market, put it all in a low-cost global equities index fund and leave it there. No bonds, no cash, only equities.

Pay into it until they are 18 and then let compound interest and dividends do the rest. Easy. The main advantage here is time in the markets.

As they get older and start working and knowing they've had a pension since very young, they'll have the flexibility of saving more for a house deposit etc...

@Hermione101
*As they get older and start working and knowing they've had a pension since very young, they'll have the flexibility of saving more for a house deposit etc..."
I'd not thought of it like that. Thanks.

Yes - unless you really know what you're doing stick to a global tracker or 2 rather than trying to beat the market on your own. Or a specific retirement fund that will give you a mix of types of investment and rebalance to lower risk ones as you approach retirement age, like a traditional pension.

Out of taxed income though. So it will cost them more than if they are given a lump sum for a deposit and make pension conts themselves. Plus of course the employers contributions.

Low cost index tracker is the best option.

£500 per annum from age 1 if put into a low cost S&P500 index tracker will be over £1 million by the time they are 60.

Don't understand this at all, but also don't believe it. It's more a principle and getting us into good habits. £500 pa from 1 to 60 is only £30k. That can't possibly become a million!!!

That assumes about 9% growth/year. Not out of the question if the stock market does well - the S&P 500 has averaged 9.7% over the past century.

But even on a much more modest projection of 4% it's not £30,000; it's over £120,000. Compound interest is a wonderful thing.

www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Of course that's not taking inflation into account, so it's less in real terms but still a hefty amount (and 4% on top of inflation is quite realistic).

I really wouldn’t start pensions for them until

• your own long term savings/pension is on track
• you have saved money for university (if that’s likely to be an option)
• probably something towards a house deposit

a few hundred pounds in a pension isn’t creating any “good habits”

Op I wonder if op meant £50 per month.

I have just done a spreadsheet for dd2 and assumes I pay £1000 a year for 6 years from the ages of 12 to 18.

I assume that she’ll get 25% in tax and growth is 6% per year.

My £7000 would be worth over £120k at the age of 60.

if I paid £600 per year at 0 to 18 the value at 60 (with 6% growth) would be almost £270k.

The compound interest is phenomenal.