Parents across the country could be missing out on a large amount of extra money for their kids.
A financial expert has warned that children could be £720 a year worse off because their parents or guardians have not taken out a pension for them and started contributing. Rowan Harding, financial planner with Path Financial, said thousands of children could be benefiting from £720 a year basic rate tax relief from the Government to put towards retirement if those looking after them take out a junior pension for those aged under 18.
At present, parents or guardians can put in up to £2,880 a year into a junior pension, and the child will receive basic rate tax relief of 20% in additional contributions from the Government, meaning up to £3,600 could be in their pension each year - that’s a £720 a year cash boost for free.
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If a parent or guardian of someone aged under 18 chooses to take out this plan, the money will be fully controlled by them until the child reaches their eighteenth birthday, at which point ownership will transfer to the child. There is no tax to pay on the investments within a junior pension plan so long as it doesn’t fall foul of the Annual Allowance and Lifetime Allowance rules; so it could prove rather lucrative. Especially given a pension is a long-term investment.
Now may not seem an ideal time to take out the plan, though, with the rising cost-of-living meaning many are choosing to tighten their belts and forgo things that may not be seen as vital. But Rowan said that if you can afford to still contribute to a pension plan for your child, it could certainly be worthwhile when they actually come to retire.
She said: “The cost-of-living is putting a restraint on household budgets and some may see preparing for their child’s retirement as a luxury. But, if you can afford to continue paying, it could prove crucial further down the line. Don’t forget that you don’t need to actually put in the full amount of £2,880 a year to receive a contribution, as the Government will give you basic rate tax relief of 20 percent in additional contributions on however much you put in.
“So, if you can, you should still consider putting it into your kid’s pension pot. For example, if you put in £1,000 a year, net, the child will receive £250 in additional contributions from the Government. The maximum of £720 from the government basic rate tax relief stands for those who make the maximum allowable contribution of £2,880 in any one tax year.
“Many people don’t realise what their child could be getting, so it’s important we get the message out that parents and guardians could boost their kid’s retirement pot by thousands of pounds before they hit 18.”
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