19 February 2010

Pensions for Children

That sounds like a contradiction in terms, I’m sure you’d agree. But a client has highlighted to me the value of starting a pension early – and that means as soon after birth as possible – and I thought it was worth passing it on to a wider audience.

The source of the information was a recent Saturday Telegraph article, and it highlights what keen investors will know about – let’s call it the miracle of compounding.

Basically, if you (on behalf of the new-born baby!) contribute the maximum allowed for a non-taxpayer into a pension plan (yes, even children can have one) - that's £2,880 net per year – for the first 18 years of their life, then they could have a pension pot of £1.8m. That’s worth having! (although the real value would be less due to inflation during their lifetime).

There are potential Inheritance Tax advantages for you, too, particularly if you are older (perhaps a grandparent), since that amount fits into your annual allowance for gifts of £3,000. However, if you have more than one grandchild you have to make sure that you live at least seven more years to take full advantage.

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