Investing £600 into a child’s pension every Christmas until they are 18 could boost their retirement pot by £34,000, according to Standard Life.
Analysis by the pension provider showed that if a parent invested £300 into their child’s pension every Christmas from birth until the age of 18, they could build up a pension pot of £6,270 in today’s prices by the time their child reaches 22, the age at which they would be eligible to be auto-enrolled into their own pension.
If grandparents were to match this, taking the yearly total to £600, the pot could grow to £12,500 adjusted for inflation by age 22.
For families able to contribute the maximum annual amount of £2,880, the child could have £60,100 by age 22, again adjusted for inflation.
Standard Life’s analysis found those who start working at 22 on a salary of £25,000 per year and paid the minimum monthly auto-enrolment contributions could have a total retirement fund of £210,000 by the age of 68, adjusted for inflation.
If that individual had a headstart in the form of a child’s pension worth £6,270 at 22, they could have a pot of £227,000 by retirement as a result of compound investment growth. The benefit could be even greater for those who had a £600 contribution from relatives, with these people potentially ending up with a pot of £244,000 adjusted for inflation.
Mike Ambery, retirement savings director at Standard Life, said: “A child’s pension might not be the most exciting Christmas gift, and it doesn’t offer the instant thrill of unwrapping a toy, but it can be one of the most valuable and a gift that keeps on giving for decades.
“With life expectancy rising and financial pressures mounting, it’s increasingly challenging for younger generations to prepare for their own retirement. If you’re able to, paying into a child’s pension provides a tax-efficient way to give them a head start and benefit from compound investment growth from the earliest moment possible. Once the child pension is set up, anyone can contribute – parents, grandparents, even friends.”
Standard Life said contributing to a child’s pension can also support wider estate planning, with unspent pension pots expected to fall within the scope of inheritance tax from April 2027.
Regular contributions to a child’s pension can qualify as exempt gifts under HMRC’s ‘normal expenditure out of income’ rules, provided they are made from surplus income as part of a settled pattern and do not affect your standard of living.
