Many families want to give their children or grandchildren a head start for their future finances. As the costs of private education, university, getting on the property ladder and weddings continue their relentless upward march, investing for your children or grandchildren early is crucial.
The best way to make gifts will be different depending on how old they are. But making a gift at the earliest possible time means that any potential investment growth can play a big part in meeting a future cost.
Saving into a Self-Invested Personal Pension (SIPP) or other pension for a child is an excellent way to give their financial future a boost.
What is a Junior SIPP?
A Junior SIPP is a tax-efficient way to start building a nest egg for your child or grandchild. Only a parent or guardian can open the pension but anyone can contribute. Control of the pension passes to the child when they reach age 18.
Children’s pensions benefit from the same advantages as adult pensions. That means no tax is payable on income from investments or capital growth in the pension, provided they remain within the Annual Allowance and Lifetime Allowances.
As the name suggests, you can choose the investments that go inside the pension. You can invest an annual lump sum, or spread contributions across the year by investing a smaller amount each month.
If the maximum annual contribution is made (£2,880 per year), the Government will automatically contribute another 20% tax relief (up to £720), making a total contribution of £3,600 (tax year 2021/22).
Gifts to a child’s or grandchild’s pension are often covered by one of the Inheritance Tax exemptions and so could fall outside your estate for Inheritance Tax purposes. But it is important to remember the money in a SIPP cannot be accessed until age 55 (rising to 57 in 2028).
- Children’s pensions
- Defined benefit (or final salary) pensions
- Defined contribution pensions
- Personal pensions
- Self-Invested Personal Pensions (SIPPs)
- The state pension
- Annual allowance and lifetime allowance limits
- Busting myths about pensions
- Increases to pension age and new normal minimum pension age
- Pension freedoms
- Pension withdrawal methods
- The lifetime allowance
- Delaying retirement
- Generating income from investments throughout your retirement years
- Importance of a retirement wealth check
- Retirement goal setting
- Retirement planning
- Reviewing your retirement plan
- Staggered retirement
- Taking control of your retirement plans
- What can I do with my pension?
- What happens to my pension on death?
- Discretionary Fund Managers
- Market timing
- Minimising risk
- Multiple asset classes
- Portfolio insulation
- Pound cost averaging
- Principles of investing
Growing your wealth
Goals based investing
- Cash flow modelling
- Creating a financial roadmap
- Investment objectives
- Timescales and market activity and the impact of losses
- ‘What if’ scenarios
- Discussing legacy planning with your loved ones
- Inheritance Tax (IHT)
- Inheritance Tax Residence Nil Rate Band (RNRB)
- Lasting power of attorney
- Lifetime transfers
- Making a Will
- Preserving wealth for future generations
- Protecting your assets for the next generation
- Slicing up your wealth pie