Savings for grandchildren
Setting your grandchildren up with a pension
Human nature, means that most of us want to help our families to a more secure future. While it might not be as exciting as this year’s must have Barbie or iPod, setting your grandchildren up with a pension could be the one gift they remember you most fondly for.
Everyone knows that the sooner you start a pension, the more you eventually have to play with.
So why wait for your grandchildren to grow up and start earning a living to nag them to start a pension. You can do it for them now, and it might with time, turn out to be the best Christmas, or birthday, gift you ever got them.
There are two ways for grandparents to contribute to a pension for their grandchildren.
Regardless of which route you take, the earliest your grandchild will get their hands on the money in the pension fund you set up, is when they are 55.
Stakeholder Pensions and Grandchildren
If you opt for a stakeholder pension you can put in either a lump sum, or regular monthly amounts up to £3,600 a year.
Whatever you put in, time and what is known in financial industry speak as “compounding interest ” can work wonders.
A, one off, £3,000 lump sum put in its managed stakeholder fund for a child born in August 2007, would be worth £133,000 (assuming an intermediary growth rate of 7%) by the time they hit 65.
Even if you want to go against the historical evidence that equities outperform all other asset classes over time, and stick it in a cash fund (so its basically a savings with pension rules wrapped around it) that same £3,000 lump sum would be worth £37,700 (assuming a rate of 5%).