Surprisingly...Yes!

A lot of people are unaware that every child born in the UK from the day they are born is eligible for a pension plan.

 
So, what are the pros and cons?

Contributors - Even though the plan can only be opened by the parent or legal guardian of the child, the contributors to the plan can be any relative, grandparent or a family friend, and the contributions will not affect their own pension allowance.
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Bonus - The government gives a 25% bonus on top of every contribution made into the pension plan e.g. for every £80 contributed the government immediately tops it up with another £20. The maximum that can be put into the plan in any financial year is £3,600. Therefore, with the government bonus of £720, the total from contributors will be only £2,880.

Inheritance Tax (IHT) – As pensions are now exempt from IHT or any death tax, this makes contributing towards a child’s pension an attractive arrangement to parents and grandparents in passing on their wealth without IHT.

Compounding effect - If the £3,600 maximum contribution is made every year into the plan, only up to the age of 18 and assuming a conservative 4% annual growth rate, the pot could be worth around £100,000 at 18. When the child reaches 18 they take ownership of the pension plan and can keep adding contributions or leave the savings invested. With no further contributions after 18 the value of the pension could be £500,000 at age 55. Bearing this in mind the sooner you start a pension for them the better, whatever amount you chose to invest.

Helping a child start a pension plan will set them on the path towards financial security in their retirement.

The only drawback we can see is that the child can only access the pension funds from the age of 55; but at least they can’t blow it on a round the world trip at 21 or a new 650cc Norton Dominator.

 

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