Important Facts About Children’s Pensions
In 2001, laws were enacted that provide for parents or other interested adults to create children’s pension funds to save for their children’s retirement. Though gaining in popularity, these funds are still being taken advantage of by everyone. In an effort to increase interest in them and get more people started saving for retirement at an earlier age, here are some important facts about children’s pensions UK.
The most common type of children’s pension fund is a stakeholder pension fund. These can be opened with as low as £20 and annual contributions can be up to £2,880 GBP. Tax Relief is credited to the account, bringing the annual contribution up to £3,600 if the maximum amount is put in each year.
If one starts a children’s pension fund for each child he has while they are still babies, each fund will have a lot of years to accumulate value. This is because, unlike a trust fund, this money cannot be withdrawn until the child reaches age 55. This prevents the child from spending all the contributions in the exuberance of youth and leaving himself/herself without a retirement nest egg.
All contributions to these pension funds are tax free, making the fund’s value increase substantially each time a deposit is made. These funds are more flexible than other types of pension fund in that payments into the fund can be stopped and started at will. This allows for adults to contribute to their children’s retirement without having to do without for themselves when they have needs of their own.
Parents are not the only adults able to start a stakeholder children’s pension fund. The legal guardian of the child must be made aware of the fund and the deposits into it, but grandparents, aunts and uncles, godparents, or, even close family friends with an interest in the child’s future can start one and make contributions. In fact, once created, anyone at all can deposit money into the fund up to the maximum amount allowed per year.
In addition to the tax advantages for the parents contributing to these funds, there are also benefits for the children above the fact that they will have a substantial amount saved by the time they reach retirement.
There is no chance of getting to the money and wasting it in youth. Having this fund can free up their own funds for taking care of needs such as an automobile, paying for a wedding, or taking care of children of their own. Upon turning 18, the child has the ability to begin making his/her own contributions to the fund and have a substantial head start on building a retirement nest egg.
There are other types of children’s pensions UK. This is the most common one available and the easiest to understand as a layman. Sound financial advice and regular reviews of any type of pension fund are strongly recommended throughout the life of the fund. As nobody can predict the future, advice received today may be obsolete or irrelevant next year.