Why you would want to start a pension for your grandchild
F&C Asset management calculate that it will cost £30,000 to put a child born in 2007 through university.
Add to that the expense of getting onto the property ladder – with an average of £16,000 needed for the deposit, alone, according to Scottish Widow’s Bank – and it becomes clear that the current generation of under-fives, could be in their mid-thirties before they get round to saving into a pension for themselves.
Granted the government is proposing a national pensions systems, but the current plans include an opt out – and who can say that, given the other financial pressures, their grandchildren would not opt out.
Its not all altruistic though.
Research has found that grandparents like the idea of locking money up until their grandchildren are older.
There are concerns that handing money over when grandchildren are younger could act as a disincentive for them going to university or getting a job.
By providing money in the form of a pension, you have the comfort of knowing you are helping relieve some of life’s financial burden when they are older, while not running the risk of throwing them off course by handing over cash when they are too young.
The research also threw up the issue of who can access the money.
The growing instance of divorce apparently means there are a lot of grandparents who want to make sure their ex-son-in-law or daughter-in-law can not get their hands on money they are putting aside for their grandchildren.
Only the person named on the pension contract can assess the money inside it , so short of them dying it will be their’s and theirs alone to spend when they reach 55.
Pensions are also a much more straight forward way of leaving money for grandchildren to enjoy from a certain date, as they remove the need for complicated trusts.
Here to, given the current Government’s penchant for imposing a tax charge on any money left in trust for children, beyond age 18, a pension could make sense. As money inside a pension pot rolls up tax free.