Take Advantage of a Good Long Term Investment
Although it can be argued you never know what will happen in the future where pensions are concerned, it is advisable to start a pension for your child. Historically, decades of growth will lead to big returns, and given that currently they will benefit from tax relief, providing your child with a pension will pay dividends in the future.
How much should I invest for my child’s pension?
The figure which is often branded around for a child’s pension is £3600 per year. This is because even if you have no earnings you can contribute this amount to a pension. Often, non-earning spouses will pay this into a child’s pension fund.
You can start paying into a pension as soon as a child is born. This figure includes £720 tax relief which is a nice gift from the taxman.
The pros of starting a pension for your child
According to Barclays Equity Gilt Study which analyses investments going back over a hundred years, investing in shares is a good idea. Investing in shares over a 60 year period generates an average of 10% growth compared to 5% for bonds and 4% for cash.
So £3600 a year over 50 years will yield around £523,000 based on Barclay’s figures.
The cons of starting a pension for your child
The main reason to hold fire on starting a pension is that you do not know if aspects such as tax relief will apply should a new government take power. It is government legislation to factor in as well when it comes to retirement age.
Invariably, pension age increases rather than decreases. As such your child might have to wait a long time before they get their hands on their pension.
Also, if you feel they may need access to cash sooner, say for university fees a pension is not a viable solution.
Managed funds and planning for the future
This is where the issue of investing for your child’s future becomes a little more complex. The portfolio of a shorter term investment tends to be different from a longer term investment. As such, a financial planner should be involved in helping you make the right choices.
Time to bring in the grandparents
One solution is that grandparents can invest in one form of funds, while you invest in another. It is considered a good investment for grandparents to use investment funds. In this kind of fund, shares are traded on the stock exchange with a view of low-cost, long-term growth.
Whichever route you go down, having good financial advice will be essential. With this in mind, click here and complete the Call Back Service Form. I can help you plan for your child’s future financial needs including a pension for your child, and school fees.
Source: The Daily Telegraph