Should I put money in an ISA or a pension for my child?

Hi,

Every month I put a small amount of money into an ISA for my university student son (aged 21). But, would it be better going into a personal pension? If so, since he is 40 years away from pension age, how do I choose a provider who is still going to be around?

Thanks.

I think there might be a middle ground here – it’s the Lifetime ISA (LISA).

As you say, your son is still so far off retirement, that even with all the lovely tax relief you get from pensions, his money is locked up for what will feel like forever for him!

One thing I will say is that you could gift him the knowledge of pensions now, so he doesn’t see them as an alien, freaky thing for ‘old people’. You could put £100 into one today and leave it there – so when he is ready to investigate down the track, he doesn’t have that first barrier of “OMG, how do I get started?!”

In terms of a savings account today, he is likely to consider a property at some point. (You hope?!) In which case, a Lifetime ISA is good news. It’s a bit like an ISA – you can have either a Stocks & Shares or a Cash one, and it’s quarantined from tax.

You can put up to £4,000 a year into a LISA and the Government will add £1 for every £4 you put in, up to a maximum annual amount of £1,000. BUT, you need to be sure you will use this for either a first property or retirement – any other reasons or early withdrawals and you get clobbered with exit fees!

Our Best Buy LISA award winners can help you choose.