While most parents naturally think about university funds, a first car, or help with a house deposit, there’s a long-term option that’s often overlooked – childhood pensions.
The power of starting early
Pensions are vital for future financial security, and starting early creates extraordinary potential. The most compelling reason? The power of compound growth over time.
For instance, contributing just £100 monthly from birth to 18 could grow to over £160,000 by retirement age, from a total contribution of only £21,600 (assuming an average annual growth rate of 5%)*.
Imagine your child starting adult life with retirement already sorted – a gift that brings lifelong financial confidence and security.
By starting a pension for your child, you give investments nearly 60 years to grow before they can access it (at age 55 and rising to 57 in 2028 under current legislation). These extra 18 years create the opportunity for exceptional returns, even with minimal contributions.
Tax benefits that maximise growth
Childhood pensions receive the same valuable tax advantages as adult pensions.
For every £80 you contribute, the Government adds £20 through tax relief, up to the maximum annual contribution of £2,880 (£3,600 with tax relief) for the 2025/26 tax year.
All contributions grow free from Capital Gains Tax and Income Tax, meaning there is a huge potential for compound growth over the years.
While childhood pensions are locked away until retirement age, a Junior Individual Savings Account (JISA) offers earlier access if that’s important to your planning.
Establishing financial awareness
Financial education, and the ability to discuss money, save, and plan for the future, are essential skills for children to learn. A childhood pension – alongside a JISA – provides practical building blocks for developing a healthy relationship with money.
As children reach their teens, you can involve them in reviewing their annual statements and discussing investment choices. This hands-on experience provides knowledge that will help them throughout their lives.
With this education from an early age, your child will have a financial foundation many of their peers lack. They will be encouraged to continue pension saving throughout their working life, giving them more choices and control over their retirement planning.
Incorporating children into family pension planning
At Mattioli Woods, we work with you to include your children in comprehensive family pension strategies.
One of our popular products is multi-member pension arrangements, which deliver several benefits:
- build your child’s retirement funds within a family pension structure
- incorporate adult children’s pensions into the same scheme
- access professional advice and holistic investment management
- share costs proportionally, potentially saving money for the whole family
These arrangements have proven to be beneficial as children go out to work and begin creating their own retirement savings.
Getting started
Starting a pension for your child is straightforward. You can open a self-invested personal pension (SIPP) from just £50 per month – subject to the annual allowance of £2,880.
Family members and friends can also contribute to your child’s pension, provided total contributions don’t exceed the annual allowance.
At Mattioli Woods, we have developed our SIPP and small self-administered schemes (SSAS) as multi-member arrangements, allowing your children to consolidate or build their own retirement fund within a family structure.
Your consultant can even discuss reducing fees based on your children’s share of the overall pension scheme.
Looking ahead
Regular reviews of childhood pensions are essential, especially when tax years change. While the allowance currently remains the same, you should always check for any regulatory changes that may affect your retirement planning – both for your child and yourself.
Remember; when it comes to pensions, time is your greatest asset. Starting your child’s retirement journey now provides them with a financial foundation that will benefit them for years to come – the perfect gift for their future.
To discuss childhood pensions, contact your consultant for a review of your financial strategy. If you’re not already a client of Mattioli Woods, book your complimentary meeting to discuss how we can work with you on your financial planning.
*All figures are purely for illustration purposes only.
Content correct at the time of writing.
