Copyright dailyrecord
This Christmas, more parents and grandparents are expected to give their children or grandchildren money towards their future instead of traditional gifts. Families are able to open a Junior SIPP (Self-Invested Personal Pension) for under 18-year-olds and start saving thousands every year for their retirement, according to Rowan Harding, financial planner at ethical financial advice firm Path Financial. With more young people now spending longer saving up for things like university, getting on the property ladder and childcare costs, it’s understandable that saving for the second half of their lives often goes overlooked. But investing for your children at an early age can give them the best head start. Research shows that pension contributions for under-18s rose to £79.6 million in the year to April 5, 2023, up from £75.9m the previous year, according to the latest data from HM Revenue and Customs (HMRC). As the countdown to Christmas gets closer, many parents and grandparents are thinking about more ways to give gifts that will truly last and help to ease financial pressures later down the line. Setting up and saving into a Self-Invested Personal Pension (SIPP) or other child pension is a great way to give their financial future a boost. Rowan Harding explained: “It’s a tax efficient way to build a nest egg for your child or grandchild, and once they are opened by a parent or guardian, absolutely anyone can contribute. “Then, once the child turns 18, control of the pension moves to the child to choose how they want it to be invested, and they can have the freedom to choose options such as green pensions if they want to. So you’re not only giving your child a very valuable monetary gift, but also the gift of financial knowledge and the ability to choose where their money goes.” Rowan said: “With children’s pensions benefiting from the same advantages as adult ones, no tax is payable on income from investments or capital growth in the pension so long as they remain within the Annual Allowance and Lifetime Allowances. “However, while an adult can technically invest 100 per cent of their salary, for a child’s pension the maximum annual contribution is £2,880 plus another 20 per cent tax relief (up to £720). It’s also important to remember that even though a child can have control of their own pension at 18, unlike a Junior ISA, the money in an SIPP can’t be accessed until they are 55 (rising to 57 in 2028).” Gifts to a child’s or grandchild’s pension is often covered by one of the Inheritance Tax exemptions, so it could fall outside your estate for Inheritance Tax purposes. You can find out more here . Rowan added: “This Christmas, parents and grandparents are thinking more about what they are gifting, and the impact gifts can have on their family’s future. “A small amount put into a junior SIPP each month until the child turns 18 can really help them further down the line as they reach retirement.”
