Martin Lewis has issued an alert to all grandparents – and it’s about pensions. The personal finance expert took to X to speak about how parents can also set up pensions for their children.
And grandma and grandpa can get in on the act too. Mr Lewis said: “Did you know you can open a pension for your child (or grandchild)…?” He linked to the Money Saving Expert which has instructions as to how to get the youngsters off to a flying start saving for retirement.
And there are benefits for tax too as money paid into pension schemes can get relief. Martin said: “Children can have pensions too! Almost anyone can save into a pension and get tax relief, even if they’ve little or no income. The minimum allowance is £3,600/yr (meaning it only costs you £2,880). This means even a newborn baby can get a pension.
“And indeed I know grandparents who open them for their grandchildren, liking the idea it’ll trigger a memory of them in 50 years’ time. The advantage of this is as the earlier you start, the more time it has to grow, so starting super young should be very valuable once your ickle ones are old ‘uns like me. It’s no surprise that more than a couple of kids of the parents in MSE Towers have pensions.
“However, I’d caution to always first look after your own finances, then look at top children’s savings and fill up a junior ISA, as they’re shorter-term priorities. Yet if you’re lucky enough to have enough to do that, then a pension for the children may be a good option.”
Mr Lewis also tackled the perennial question of how much peopls should save into their pensions and described his ‘rule of thumb’. He said: “Take the age when you start putting money in your pension, halve it, and that’s the % of your salary to aim to put into your pension for the rest of your working life for a strong retirement income. So start at 20 and it’s 10% (this includes employer’s contributions), at 40 it’s 20%.
“Don’t worry, almost nobody gets there. The real takeaway is that the earlier you start, the better, as you’ve longer for gains to compound. Plus my tip is, every time you get a pay rise, if possible put a chunk of that into your pension before you get used to the increase. See our beginners’ guide to pensions for more.”