The Value of Starting Early

Being prepared and starting early is often good advice in many situations and it certainly applies when it comes to saving for retirement income.
The sooner you start adding to a retirement pot the better, as this will save having to make more significant contributions in the future to achieve the required income.

At this time of year when we are considering making various gifts to children that will most likely end up at the bottom of a toy box, we could instead be putting contributions into a savings plan for their futures. Granted, they may not appreciate this now, but the longer-term benefits could be life changing.

The current rules allow relatives to invest £2,880.00 each tax year into a pension for a child and this contribution will receive tax relief at 20% adding a further £720.00. If started as soon as possible this could result in total contributions into a pension of £64,800 by the time the child is 18 and £12,960 of this would have been tax relief. In addition, 25% of the fund could be taken tax free and the remaining 75% would be taxable.

This would also give the opportunity to be more adventurous with the investment fund choice, as the funds would not be able to be accessed until age 58 under current legislation, taking a more speculative approach at this time could really pay off in the future.

Alternatively, there is the option of investing up to £4,260 in a Junior stocks and shares or cash ISA as this would offer tax efficient savings and would be able to be accessed earlier at age 18.
An ISA is not subject to Capital Gains or Income tax, but it does not receive tax relief either. This would however provide tax free funds earlier for a possible car purchase or university costs. Again, a more speculative approach could be used with the investment choice to gain the greater potential for growth.

All the above allowances and basic rates of tax relief were correct at the time of writing however these could be changed in the future allowing greater or reduced contributions.
Either way, starting savings for children early will most certainly be one of the better gifts you could give.

This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case. Based upon our understanding of UK tax law at December 2018. The value of investments can fall as well as rise and you may not get back the full value of your investment

Kristina Bailey DipFa CeMAP
Financial Planner