Pension for young children?

[dublingirl]

I have been thinking for a while now I would like to start a pension for my 3 young children..
Ideally I would like to put away 50 euros a month for each of them for the next 30 years... the idea being that they wouldn't be able to access it until they were 55..
Is it possible to do such a thing?
Has anyone done this already?
Thanks!

 

[rob oyle]

I can understand saving for your children's future but not sure why it would be for their retirement? Maybe save instead for their future education?

 

[dublingirl]

To be honest I will be saving for that as well.. but in relation to their pension I am thinking of a few things
1. The power of compound interest
2. The fact that (please God) they could have a very long life
Take a look at this here
(couldn't share link as am too new) but if you google it..

"Parents could make their baby an adult millionaire by starting a pension pot when they are born. While it may be hard to imagine your children reaching retirement, by contributing just £88 per month to a child self invested pension plan (SIPP) until the age of 18, the fund should easily top £1 million by the time they reach 65.

major factor is the length of time the money will be invested. With the investment horizon of a baby's pension fund extending over 60 years, this effect can be considerable. A single £2,880 contribution on the birth of a child will grow to more than £19,000 in real terms by the time they are 68, assuming the pot grows at an average 2.5pc a year above inflation, net of charges.

Pay in that amount every year until they are 18 and they will start their working lives with a real-terms pot of £81,900 that should give them a fund of £233,000 by the time they are 60, even if they never make another contribution.|

Having lived through financial instability ourselves we would like things to be more secure for our children..
That said I probably wont ever tell them about it till they are reading out our will

 

[Steven Barrett]

You can start a savings plan for your children but you cannot start a pension plan for them.

The tax relief is based on your income, not theirs. If they are under 18 years of age, they can't enter a meaningful contract, a life company will not accept the contract.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[dublingirl]

Thanks for that Steven.. so essentially I just need to save the money myself and then be disciplined enough not to spend it..
Are there any savings product you would recommend given that I am happy to at least be saving regularly for the next 15 years and don't want to touch it in that time frame?
Or would it be best to just invest it in the stock market (am thinking Vanguard ETFs through TD Investing??)

 

[Marc]

You are referring to UK Stakeholder Pension legislation that was introduced in the UK at the turn of the Century.

The UK revenue broke the link between earned income and tax relief on pension contributions in order that, for example, non-working spouses could continue to accrue pension rights in their own name.

In the UK a parent or guardian may establish a contract on behalf of a minor.

At the time I was advising in the UK and established hundreds of pension plans as part of an integrated estate planning exercise.

The grandparents made a gift of £2808 (within the annual £3000 Inheritance Tax exemption saving 40% inheritance tax) this was invested in the pension for the grandchild. Tax relief added at source immediately turned this into £3,600 the max contribution.

This then grew tax free to earliest retirement age - now 55 in the UK.

The initial contributions made in Jan 2001 are now worth around a little over £9,500 allowing for the 1% annual charge and assuming an all equity investment strategy (remember that the investment term is at least half a century!!)

If the grandparent had made the same contributions annually for the first 10 years of the child's life the fund would now be worth a little over £90,000 by my calculations.

So that amounts to substantial inheritance tax savings by skipping a generation (40% on the grandparents estate and 40% on the parent's estate) plus the income tax and capital gains tax breaks to boot!!!

I've been able to achieve some similar benefits in Ireland but you don't get the kicker of the tax relief for the minor children effectively losing a couple of decades of compound interest.

Irish residents with family in the UK can of course achieve these effects.

Important: The above is intended for educational and information purposes only and is not intended to represent a definitive interpretation of UK or Irish tax law or practice.