As a parent of two young children under the age of three (who seem to have a vastly better social life than I did even when I was in my twenties) means that I am regularly attending birthday parties and christenings and my wife also often attends, what I thought was an American tradition, “baby showers”.
Perhaps it’s down to my role as a financial planner but it never ceases to amaze me just how much money is spent these days on presents, buffets, clothes and the hiring of venues. One Monday morning, after attending such an event over the weekend, I was undertaking an annual review for a long standing client who was unsure of the best action to take with a small pension plan he held through us. The money was not significant and he was considering giving what he could from it to his grandchildren.
“To be spent on what?” I asked, “A night out? Pizza? Holidays?”
Instead I asked, “Why not consider placing it into a pension for your grandchild?”
£2000 gifted to his grandchild aged 14 today, will attract immediate tax relief from HMRC (even though the child is a non tax payer) and £2500 into a pension today could provide a fund value of approx £47,300 assuming a 7% return at retirement age 70.*
As you may agree it may not be as exciting as a holiday, a night out or as tasty as a pizza but the projections are simply staggering. My daughter would no doubt rather have the pizza, but she is only 2 and ½ years old and Daddy knows best. I do suggest you talk with your financial planner and consider this as part of a strategy of gifts/plans as there are restrictions on accessibility however used correctly it just might be worth your consideration.
*Source Scottish Life Pension Illustration net of charges produced 24th June 2013
N.B The figure shown in the illustration is subject to charges and tax rates remaining the same through the life of the investment.
Please also note that gifts over £3000 per fiscal year are subject to tax.