The average UK household spends about £713 at Christmas, according to the Bank of England (Image: Getty)
The average UK household spends about £713 at Christmas, according to the , with the majority spent on gifts like books, phones and clothes.
Standard Life, part of Phoenix Group, is suggesting that parents divert some of that money by setting up a pension for their child.
It claims if £300 – less than half the total average household spend – was invested into a child’s pension from the age of 0-18 each Christmas, by the age of 22 they could build up a pension pot of £7,390 in today’s prices.
If grandparents were to match, meaning a total of £600 was invested into a child’s pension at Christmas, they could build a pot of £14,800 adjusted for inflation by the age of 22.
Standard Life said on a salary of £25,000 per year who started paying the minimum monthly auto-enrolment contributions could build up a total retirement fund of £193,000 by the age of 66, adjusted for inflation.
With a £300 per Christmas boost, and the resulting pot of £7,390 by the age of 22, by retirement they could end up with a pot of £209,000.
The boost is worth £16,000 more in today’s prices – thanks to the power of compound investment growth. If they received £600 a month, they could end up with a pot of £225,000 adjusted for inflation, £32,000 more.
Dean Butler, managing director for retail direct at Standard Life, said putting money into a child’s pension was unlikely to be on anybody’s list to Santa.
However, she added: “But investing into a child’s pension could be a present that lasts much longer than any toy. It may not be as tangible in the short term, but in years to come it’s likely to be something your child will thank you for.”
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The impact of a pension for Christmas |
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Pot at 22 with £300 annual gift, age 0-18 |
Pot at 22 with £600 annual gift, age 0-18 |
Pension pot at 66 without any investment before starting work at 22* |
Pension pot at 66 (with parents investing £300 each Christmas until 18) |
Pension pot at 66 (with parents and grandparents both investing £300 each Christmas until 18) |
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£7,390 |
£14,800 |
£193,000 |
£209,000 |
£225,000 |
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+£16,000 |
+£32,000 |
Butler said: “With people living for longer, and many shorter-term financial pressures along the way, future generations are at risk of not being able to fund their entire retirement. To help set them up for the future, and if they can afford to, parents and grandparents could give their child a head start on their savings by opening a pension on their behalf. I
How does a child’s pension work?
Butler says a child pension is a scheme set up for anyone under 18.
You can pay up to £2,880 each financial year into a child pension, but – unlike with a Junior ISA – eligible contributions receive a 20 per cent boost from the government even though your child is not yet a taxpayer. This means if you pay in the maximum annual amount of £2,880, then £3,600 is actually invested.
It is a tax efficient way to save as it’s not subject to Income Tax or Capital Gains Tax on any investment growth.
Who can pay into them?
“With a child pension, a parent or guardian has to set them up, but once this is done anyone can pay in, meaning grandparents, godparents, other relatives or friends can also contribute. The only thing to watch out for is that the annual allowances aren’t exceeded.”
When can a child access their funds?
“A child can take control of their pension plan from age 18, at which point they can make any decisions themselves, such as where they want their pension contributions to be invested, but the funds cannot be touched until they reach minimum pension age (57 from 2028).”