Pensions for children: a present that isn’t just for Christmas

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• Christmas is a time for giving, but what if you were able to give a gift that could last a lifetime? 

• Standard Life outlines how at Christmas parents could help give them a head start on saving for later in life 

As decorations go up, gifts are wrapped and festive plans are finalised, new Standard Life, part of Phoenix Group analysis reveals the impact investing into a child’s pension at Christmas could have by the time they reach retirement.  

The average UK household spends about £713 at Christmas, according to the Bank of England, with the majority spent on gifts like books, phones and clothes. However, diverting money into a child’s pension instead could lead to a significant boost in retirement. 

If £300, less than half the total average household Christmas spend, was invested into a child’s pension from the age of 0-18 each Christmas, by the age of 22 they could build up a pension pot of £7,390 in today’s prices. If grandparents were to match, meaning a total of £600 was invested into a child’s pension at Christmas, they could build a pot of £14,800 adjusted for inflation by the age of 22. 

Standard Life calculations find that those who begin working aged 22 on a salary of £25,000 per year and pay the minimum monthly auto-enrolment contributions (5% employee, 3% employer) from the age of 22, could build up a total retirement fund of £193,000 by the age of 66, adjusted for inflation. With the £300 per Christmas boost, and the resulting pot of £7,390 by the age of 22, by retirement they could end up with a pot of £209,000, £16,000 more in today’s prices - thanks to the power of compound investment growth. If they received £600 a month, they could end up with a pot of £225,000 adjusted for inflation, £32,000 more.  

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*if beginning working with a salary of £25,000 per year and paying 5% monthly employee contributions and 3% employer contributions into a workplace pension at the age of 22 and assuming 3.5% salary growth per year, 5%  investment growth and 2% inflation. Annual Management Charge of 0.75% assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.  

Dean Butler, Managing Director for Retail Direct at Standard Life said: “It’s unlikely to be on anybody’s list to Santa, but investing into a child’s pension could be a present that lasts much longer than any toy. It may not be as tangible in the short term, but in years to come it’s likely to be something your child will thank you for. 

“With people living for longer, and many shorter-term financial pressures along the way, future generations are at risk of not being able to fund their entire retirement. To help set them up for the future, and if they can afford to, parents and grandparents could give their child a head start on their savings by opening a pension on their behalf. It offers a tax efficient way of saving and, once they’ve been set up, anyone can make contributions. This can give a young person a good nest egg for later in life, and by starting their savings early, they’ll benefit from a long period of compounding, whereby increases build upon themselves. Even if you only end up paying in for a few years, the pot could have many decades to grow in value.”  

Dean Butler compares the key attributes of a child pension: 

How does it work? 

“A child pension is a scheme set up for anyone under 18. You can pay up to £2,880 each financial year into a child pension, but – unlike with a Junior ISA - eligible contributions receive a 20% boost from the government even though your child is not yet a taxpayer. This means if you pay in the maximum annual amount of £2,880, then £3,600 is actually invested. 

“It is a tax efficient way to save as it’s not subject to Income Tax or Capital Gains Tax on any investment growth.  

Who can pay into them? 

“With a child pension, a parent or guardian has to set them up, but once this is done anyone can pay in, meaning grandparents, godparents, other relatives or friends can also contribute. The only thing to watch out for is that the annual allowances aren’t exceeded. 

When can a child access their funds? 

“A child can take control of their pension plan from age 18, at which point they can make any decisions themselves, such as where they want their pension contributions to be invested, but the funds cannot be touched until they reach minimum pension age (57 from 2028).” 
 

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About Standard Life 

• Standard Life is a brand that has been trusted to look after peoples’ life savings for nearly 200 years  

  Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers’ pension scheme. 

  Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We’re proud to be building on nearly 200 years of Standard Life heritage together 

  Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future. We’re proud to offer a leading range of sustainable and responsible investment options. 

  We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs and plan a future they feel confident about. 

  The value of investments can go down as well as up and may be worth less than originally invested. Earning limits not applied.