I have two children and I would like to start a pension for each of them, where can I start?

28 July 2021

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Question by Helen

Hello, I have two children (aged 21 & 15) and I would like to start a pension for each of them (although I suspect my 21yr old daughter will need to set up her own), where can I start? My son has a Child Trust Fund & my daughter has Help to buy ISA & a LISA plus a small stocks & shares ISA. Thank you, Helen

Answered by James Greenly

Hi Helen

A good starting place would be Boring Money’s ‘best buy’ list of pension providers, which you can find here: https://www.boringmoney.co.uk/pensions/pensions/

They have done all the hard work for you and reviewed each of the providers, the pension they offer as well as things like charges and available investment funds.

Your daughter can open her own pension as she is over the age of 18, and you can open a ‘junior’ pension for your son (it will automatically convert into a normal ‘adult’ pension when he turns age 18). You will be able to contribute £3,600 into your son’s pension until he is age 18, and at that point the amount he can contribute will depend on his earnings.

In theory, there is no maximum amount you/they can contribute into a pension once over the age of 18, however most people limit their contributions to the ‘annual allowance’ – which is the amount of money you can save each year and get a government top up on.

I have outlined a very high-level strategy for you to consider for your son and daughter. Please note this is not advice and you will need to research the pension provider and investment portfolio yourself, as well as being comfortable with the level of money you contribute (once it’s in the pension, there’s no getting it out until your children reach their late 50’s!)

Approach for your son

1. Research pension providers on the Boring Money ‘best buy’ panel
2. See if they offer a ‘junior’ pension, and if so, open one for your son
3. Pick an appropriate investment portfolio
4. Decide how much you can contribute, either as a monthly amount or lump sum

You could contribute to this for three years (until age 18) – so in theory, even with no growth, if you contributed the maximum £3,600 amount for 3 years, your son would have over £10,000 in his pension, which would have the best part of 40 years to grow. Remember, even though your contribution is £3,600, you only have to part with £2,880, as the government top this up by 20%, bringing the total to the £3,600!

He also then has a pension ready for when he starts working and can simply continue adding money himself over the years. Even once the pension has turned into an ‘adult’ pension, you can continue to contribute, and your son will enjoy the government top up.

As he has an existing CTF, you can also continue to contribute to this, however he will take control of this at age 16 and can withdraw the funds at age 18. Depending on his circumstances, at age 18 he could potentially cash it in and reinvest the sale proceeds of the CTF into his pension (as long as his earnings allow) – although remember this will be inaccessible for 40 years! This may be appropriate if he is confident that he won’t need the money (for example, if you have further gifts planned for house deposits etc.)

Approach for your daughter

1. If your daughter is working, find out if her employer has opened a workplace pension scheme for her.
2. If so, then you can ask her to contact them to see if they allow parents to directly contribute. If they do not, then you could ‘gift’ the money to your daughter, for her to immediately contribute to the existing pension.
3. If she is not yet working, again you can research an appropriate pension from the Boring Money ‘best buy’ list – this time you will not need to find a provider offering a junior pension.
4. Decide how much you can contribute, either as a monthly amount or lump sum

The total amount you can (tax efficiently) contribute is limited by the ‘annual allowance’, which will be determined by how much your daughter is earning, if working.

Hopefully the above gives you a good starting point when you approach pensions for your children, however pensions can be a bit of a complex area, and it is important that you are comfortable with what you’re doing when opening and contributing to pensions.

I would recommend seeking independent financial advice if you have any questions about the best approach for your children.

Boring Money have a list of financial advisers that you can contact for any support: https://www.boringmoneyadvice.co.uk/find-an-adviser/

Best wishes

Answered by

James Greenly

Chartered Financial Planner

I am a Chartered Financial Planner at Capital Asset Management, a boutique financial planning and wealth management firm based in the City of London.