Enable’s IFA’s in bishop’s Stortford know that tax-efficient junior Isa’s work safely tucking away cash in a tax-free place, with no access for parents or child and when the child reaches 18. But in practice, some parents worry their child will find other, less responsible uses for it says Adrian Boulding, pensions strategy director at Legal & General (L&G) “There’s a good reason why child trust funds, the predecessors of the JISA, were dubbed ‘motorbike funds’,” he adds.
So what about transforming your child’s longer-term financial future with a pension? Money put into a child’s pension gets the same tax relief as any other pension, so the taxman will add 20% to payments, to a maximum £3,600 each tax year (£2,880 of relatives’ contributions and £720 in tax relief). If you save for retirement from birth, your money has a massive 50 years of undisturbed growth. If you set up a child’s self-invested personal pension or SIPP at birth and say grandparents agreed to pay £30 a month. With 20% tax relief, their contribution is boosted to £36 a month, assuming that investment produces returns averaging around 5.5% a year (after charges of 1.5% a year). By the age of 18, the grandparents would have drip-fed £6,480 into the pension fund; thanks to compounded growth, it would be worth around £13,200.
At that point, the pension passes to the child’s control and even if no further contributions were made, continuing investment growth will mean that at 65 years it would be worth £175,000.
If you can afford to contribute to both a JISA and a children’s pension, it really makes sense to run them side by side – that way you’re helping with ‘near money’ for the imminent costs they’ll face, but also with ‘far money’ for retirement.
Issued by: Enable Independent Financial Life Planners 25c North Street, Bishops Stortford, Herts CM23 2LD Telephone: 01279 755950 – Fax: 01279 657339 Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority. It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us. NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE
