Is it possible to buy & contribute to a pension for my adult children?

12 April 2021

Question by Lulu

Is it possible to buy & contribute to a pension for my adult children? Both are employed and pay into their company pension scheme but I am aware that they will change their jobs many times over their lifetime & feel that a private pension will be beneficial to them?

Answered by Boring Money

Dear Lulu

Yes it is possible to make third party contributions to a personal or stakeholder pension plan for your adult children, but there are some potentially complicated issues to consider (more on this below) so it may be worth seeking independent advice if you proceed with this.

The person applying to open the plan needs to be your child, and not you. The contributions will be net of basic rate income tax relief, so for every £80 you pay, £100 is invested.

Your contributions will be treated as though your child has made them and so will count towards their Annual Allowance. Tax relief is allowed on contributions up to the greater of 100% of UK earnings (subject to Annual Allowance limits) or £3,600.

That all being said, it is likely a company pension scheme will have lower product charges than an individual personal or stakeholder pension plan. In the interests of keeping charges low, you might also consider the option of agreeing with your child to help them fund additional voluntary contributions that they can make into their company pension scheme.

Finally you need to consider the potential inheritance tax (IHT) implications of making third party contributions or regular gifts to your children to support them making additional contributions to a company scheme.

There is an annual exemption allowance for gifts of £3,000 per annum and you can carry that forward from last year if it was unused. You can also look at making gifts as normal expenditure out of surplus income which are exempt.

Answered by

Boring Money