Children’s Pensions

Many families want to give their children or grandchildren a head start for their future finances.

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.

Many parents and grandparents have reservations about outright gifting to children due to fears of immaturity in handling their own finances. By making gifts to a pension the child will not be able to gain access until they reach pension age.

Saving into a Junior pension for a child is an excellent way to give their financial future a boost.

What is a Junior Pension?

A Junior Pension is a tax-efficient way to start building a retirement 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, but they cannot immediately access the funds.

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.

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.

The Government will top up any contributions made by 20%, subject to a maximum contribution amount of £2,880 (2024/25 tax year) to which they would add £720.

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 pension cannot be accessed until age 55 (rising to 57 in 2028).