Blog by Financial Planner Jon Palser, Fellow of the Personal Finance Society
One of our clients has been religiously putting money in a pension for years… but not for himself. He already had more than enough wealth to see him through.
It’s fairly common for parents and grandparents who can afford to gift money, to give it to children under 18, maybe with a view to buying their first car or home one day. Not many consider the benefits of giving to family members who are working age. One way to do this is in the form of pension contributions. Our client has been doing this through his childrens' twenties and thirties at the end of each tax year.
The money that is set aside for the long term has the maximum chance to grow, yet it’s often difficult for working age adults to make provision for day to day living expenses and short term savings as well as retirement planning, not to mention keeping enough emergency cash in the bank and paying premiums for life and critical illness policies.
We’re living longer and longer and the possibility of grandchildren living until they are over 100 means that having a comfortable retirement is going to become more and more challenging.
Perhaps you can see the benefit for the recipient, they will have a bigger pension pot that will have more time to grow, what a wonderful gift to give your family. But what’s in it for you?
Apart from the warm glow of knowing you have helped your family, current tax rules mean there may be income tax benefits for the recipient and Inheritance Tax benefits. As these rules may change and the impact depends upon personal circumstances it pays to discuss the matter with an adviser before making any decisions.
In a recent article Steve Webb former Pension’s Minister explains the benefits further.
However, some Financial Planners have pointed out that children could be frustrated to know that money was locked away in a pension they currently cannot access until 55, when they may have been able to use the money for more pressing matters. Also, we do not know what future governments will do to matters such as the lifetime allowance or the tax treatment of future pension withdrawals.
As always with financial planning, the way forward is very personal and it’s best to talk it over with is a qualified, Independent Financial Planner. We are ready to help you think about all the options and find the best course of action together.