How-to Guides » OLD GUIDE Save for your child's future

Start a pension for your child

0 tips on this task  |  Tweet

The sooner you start saving in a pension the better. But did you know you can now open a stakeholder pension for your children as soon as they're born?

1. Pensions love nothing more than decades and decades in which to grow. If you open a stakeholder pension before your child's 1st birthday, it could stay invested in the stock market for 65, or even 70 years, before they reach retirement. State retirement age will be pushed back to 68 from 2044, so it's entirely feasible that children born now may not retire until they reach 70.

This kind of timescale can work wonders for the value of a pension pot because your child can take advantage of compound growth over many years, turning their contributions into a fortune.

2. You can save up to £3,600 gross each tax year for each child. That's £2,880 out of your own pocket with the tax relief they'll get back from the government added on top. 

Children qualify for tax relief at a rate of 20% even though they are non-earners. So to put the maximum in each year, you pay £2,880 while the taxman contributes an extra £720 in tax relief bringing the total to £3,600.

3.You can also save for your child without spending any money of your own. For example, you could think about investing the Child Benefit you receive for your child in their stakeholder pension.

In the current tax year, Child Benefit is paid at a rate of £20 a week for your eldest or only child, and then £13.20 a week for each of your other children.

Perhaps £20 a week doesn't sound like much to you, but this could be turned into a monthly contribution of £108.33 once 20% tax relief has been added. If you saved this every month from birth until your child is 16, it could generate a pension pot worth £151,000 by the time he or she retires at 70.

That's a pretty decent pension pot, given that you haven't shelled out any extra money yourself, and contributions stop entirely when your child is 16.

4. When your children start earning encourage them to continue saving in the pension scheme themselves. This is the best way of ensuring a decent standard of living in retirement.

To find out more, read My son the millionaire and Give your child £151,000 - for free!