Should I open a pension for my child?
What to consider if you're thinking about retirement savings for a child
A child of any age can have a pension that's eligible for tax-relief, and any money added to it will have plenty of time to grow. But they won't be able to access the money until they reach at least age 57 – so you'll need to make sure that it's the best choice over other shorter-term options. We look at the pros and cons of pensions for children, how much you can save, and which providers offer them.
First, a quick overview of children's pensions:
Children can have pensions – a child’s pension can make sense if you can afford to give them a head start for retirement. But check your own finances first and prioritise your own pension, debts and emergency savings before funding a child’s.
A child's pension gets a tax boost – you can pay in up to £2,880 a year per child, with 20% tax relief added, meaning it's boosted to £3,600 in total.
The money is locked away – the child can’t access the money until at least age 57 (based on current rules; could be older in future).
There's growth potential – small contributions early on can grow substantially over decades.
Growth is tax-free – like an adult pension, there’s no tax to pay on the gains or the dividends within a pension.
Junior Self Invested Personal Pension (SIPP) must be set up by a parent or guardian – you can go straight to Junior SIPP platforms to consider.
There are other options if the money could be put to better use earlier (eg for university or first home), such as a Junior ISA, Junior Stocks & Shares ISA or a children's saving account.
Children's pensions get tax relief, but the money will be locked away until at least age 57
A child's pension must be set up and managed by a parent or guardian, but it can be arranged at any age – even for a newborn baby. And anyone can contribute, such as grandparents or other family members.
Children's pensions get tax relief, even if they've little or no income. And another big advantage is that any contributions will have decades of investment growth – though the child can't access the money until at least age 57.
But it's essential to first make sure your own finances are in order, and then consider other types of children's savings for shorter-term priorities. Before deciding whether a child's pension is a good option, consider the following questions:
How financially stable are you? There’s no point pushing yourself to save into a pension for your child if the money could be better used for daily living expenses or to pay off debts. While you're raising a family, your immediate and shorter-term financial security will be more important. Read Repay debts or save for more on this.
Do you have your own pension and savings sorted? Don't undermine your own financial future, as putting money aside in your own pension is important for your non-working years. For more, see our Pension need-to-knows guide. Similarly, having a rainy day fund and savings for your own goals is important. See Top savings accounts and Top cash ISAs.
Would a Junior ISA be a better choice? A Junior ISA will let you save or invest up to £9,000 each tax year, with the cash locked away until the child turns 18 (unlike a pension, where they'll need to be at least 57 to access the savings). We compare the features of Junior SIPPs (self-invested personal pensions) and Junior ISAs below
So, if you wanted something to help in early adulthood – like money for driving lessons, further education or a property deposit, for example – then you might be better considering a Junior ISA or Junior Stocks & Shares ISA. The money will become your child's when they turn 18 and it'll be up to them how they spend it (which may or may not be the same as how you imagined).
If you want your child(ren) to get into the savings habit early, with more flexible access to the money, you might want to consider Top children's savings accounts as well.
If you're financially stable and have already used other savings options for your child, then opening a children's pension could be a good additional extra.
How much you can save in a child's pension and how tax relief works
If you've decided that a pension is right for your child, there are limits on how much you (or others) can contribute each year:
You can contribute up to £2,880 annually to a child’s pension - this is per child, so if you have three children for example, you can contribute up to that amount for each of them.
The government adds 20% tax relief boosting it to £3,600.
The tax relief happens through ‘relief at source’, which means you won’t need to complete any forms or self-assessment paperwork.
Although it's not common for a child to have enough earnings to enable them to pay into their own pension, there might be a few exceptions. If they do, they can put any amount up to their total earnings for that tax year, or £60,000 (whichever is the lower), and get tax relief on the whole lot.
How much could the pension be worth when my child turns 57?
Any money in a child's pension will be tied up for a long time, but it could also benefit from any long-term investment growth – although as with all investments, growth is not guaranteed.
The table below shows how the money could grow by the time the child reaches 57, depending on different levels of investment growth. It assumes:
The max £3,600 is added to the pension every year from birth until age 18
That's £51,840 in contributions (£2,880 x 18 + tax relief at 20%)
The pension pot is then left to grow, with no more contributions
Annual investment growth | Amount in pension pot at age 57* |
|---|---|
1% | £105,000 |
3% | £275,000 |
5% | £715,000 |
7% | £1,830,000 |
*We've ignored pension provider fees for simplicity, but these could also affect returns.
Warning: there are no guarantees when you're investing
Many pension schemes involve an element of risk, as the value of the underlying investments can go down as well as up. However, as the investments are usually over decades rather than months or years, the typical trend is you get back more than you put in
Though this is not guaranteed – if stock markets hit a downturn just before you're about to retire or access your pension money, you can be left with a lot less than you were expecting.
Stakeholder pensions for children
When it comes to picking what sort of pension to open for your child, a stakeholder pension is one option. They aren't as common nowadays, however a few providers do still offer them, and they can be opened on behalf of a child.
Stakeholder pensions are designed to be simple, entry-level products with charges capped at 1%-1.5%. However it's worth noting many Junior SIPPs will undercut this with lower charges (though their charges aren't capped). This means stakeholder pensions might not always be the cheapest option.
As with Junior SIPPs, the most you can generally save into a stakeholder pension for a child is £3,600 a year (including tax relief).
Junior SIPPs and Junior ISAs compared
If you've decided a stakeholder pension isn't the option for you, a Junior SIPP is another alternative. Much like an adult SIPP, a Junior SIPP is a self-invested personal pension (SIPP) for under-18s.
It's essentially a do-it-yourself personal pension – you choose how much you want to contribute, and either select your own investments or opt for a investment platform that chooses for you.
The biggest difference between a Junior SIPP and Junior ISA is when the child can access the funds. Other differences include contribution limits and how they're taxed. You could also go for a dual approach and open both for a child if you want to (and funds allow).
The table below will help you to compare the key features:
Junior ISA | Junior SIPP | |
|---|---|---|
Age child can access money/funds | 18+ | 55+ |
Best for | Medium-term savings | Long-term retirement savings |
When child can manage the money | Full control at 18, inc. how it's spent | Can manage at 18, but can't withdraw money |
Annual contribution limit | £9,000 | £2,880 |
How it's taxed | Tax-free interest, dividends, and capital gains | 20% tax relief and tax-free growth |
Should I pick a Junior cash ISA or Junior Stocks & Share ISA?
If you've decided on a Junior ISA over a stakeholder pension or SIPP, you may then want to take it a step further and consider a Junior Stocks & Shares ISA. As your child is young, there is an argument that investing for them rather than just saving is solid (as the general investment rule is if you're putting money away for over five years, on the balance of probability, investing will likely significantly outperform saving).
With Junior ISAs you're often putting money away for far longer periods, so it should hopefully mean much greater growth (even more than the top savings account).
So putting some money in there (or in other investments) is often a good idea. You can have both a Junior cash ISA and a Junior Stocks & Shares ISA, as long as you don't put more £9,000 in each tax year (for each child). For more on the best platforms to use see the Stocks & Shares ISA guide.
Junior SIPP platforms to try
If you've decided a Junior SIPP is the right option, the providers in the table below are accessed and managed online or through an app.
Which one you go for might depend on how active you think you might be buying or selling funds and shares (obviously the more active you are the more expensive it will be) and how much support you think you'll need.
Although you are able to transfer to a different Junior SIPP platform once your initial one is set up, there may be fees associated with it, so do your research and make sure you're happy with your choice before you go ahead.
Below is an overview of some of the main platforms to consider:
Provider & fee information | Other key info |
|---|---|
- Platform fee: 0%-0.25% (funds) 0.25%, max £10/mth (shares) (i) - Online buying/selling fees: £1.50 (funds), £5 or £3.50 if 10+ trades in previous month (shares) - Transfer-out fee: £0 - Manage it: Online/app | AJ Bell's Junior SIPP offers a wider range of funds from many different fund managers and lets you invest directly in shares too. It's free to set up, but you pay an annual charge for holding funds and shares, so the more you have invested in your pension, the more you pay to the platform. There's also a fee every time you trade. |
- Platform fee: 0.1%-0.45% (funds) 0.45%, max £200/year (shares) (ii) - Online buying/selling fees: £0 (funds), £11.95, £8.95 if 10+ trades in previous month or £5.95 if 20+ (shares) - Transfer-out fee: £0 - Manage it: Online/app | Hargreaves Lansdown's Junior SIPP offers 2,500+ funds and ready-made 'master portfolios', as well as letting you trade directly in shares. You pay a platform charge that grows with the amount you have invested. HL also offers information online about different funds and shares if you're not sure what to invest in. |
- Platform fee: 0.2%-0.35% (funds), max £7.50 per month (shares) (iii) - Online buying/selling fees: None for funds (charges for managing funds still apply), £7.50 or £1.50 if part of regular savings plan (shares) - Phone buying/selling fees: £30 per trade - Transfer-out fee: £0 - Manage it: Online/app | The Fidelity Junior SIPP offers investors a wide choice of investments, with thousands of funds and shares on its platform. It has online guidance tools to help you choose investments, and insight from experts. There's a minimum deposit of £1,000, or £25 a month. All customers benefit from free fund dealing and 0% platform fee on cash. |
- Platform fee: 0.2% to 0.45%/year (iv) - Online buying/selling fees: £0 (funds), £4.95 per trade (shares) - Transfer-out fee: £0 - Manage it: Online/app | The Bestinvest Junior SIPP offer a wide range of investments with thousands of funds, shares, and bonds to choose from. For those who prefer a hands-off approach it offers ready-made portfolios. You can start with just £100 or £25 a month and there's no penalty for moving to another provider. |
(i) 0.25% (£0-£250k), 0.10% (£250k-£500k), no charge for amounts above £500k. (ii) 0.45% (£0-£250k), 0.25% (£250k-£1m), 0.1% (£1m-£2m), no charge over £2m. (iii) 0.35% with a regular savings plan or £90 otherwise (£0<£7.5k), 0.35% (£7.5k-£250k), 0.2% (£250k-£1m). (iv) Ready-made portfolio funds and US shares 0.2% (£0 - £500,000), 0.1% (£500,000 - £1m) £0 (£1m+). Other Funds and UK shares, 0.4% (£0 - £250,000), 0.2% (£250 - £500,000), 0.1% (£500,000 - £1m), £0 (£1m+)
Warning: For all of the providers we have referenced in this guide, your capital is at risk and SIPP rules apply.
FAQs
You can start as soon as they are born! The parent or legal guardian just must be the registered contact until the child turns 18.
When the child turns 18, their junior SIPP or stakeholder pension will convert into an adult pension, and control of it will pass to them.
So, from that point on, they will be able to manage the pension, change the investments and transfer to another provider. The one thing they won't be able to do is access the cash; the earliest they can do that is their late fifties (57), and it may even be later than this by the time they come to retire.
An awful thought, but if it sadly happens, it's no different to any other pension.
With personal pensions, you can nominate one or more beneficiaries. These are people who will be paid the amount in your pension pot if you die.
You can nominate anyone but it's usually a family member, or members.
The parent(s) will need to do the nomination on behalf of the child. You'll need the name and address of the beneficiaries, as well as their relationship to the child and the proportion of the pension pot each should receive.
You can find out more about how to do this in our What happens to my pension if I die? guide.
The pension is legally in the child's name and not the parent's, they are just the registered contact managing the account until the child turns 18. So in the event of a parent's death, the child's pension remains safe and locked away until they are at least age 57 - it doesn’t get folded into the deceased parent’s estate and the money in the child’s pension is also protected from inheritance tax (IHT) when the parent dies.
The only change is in who manages the account until the child reaches adulthood. The pension provider will normally require a new registered contact (usually the surviving parent, or another legal guardian). If no guardian is available, the court or local authority can appoint one.
Contributions already in the pot stay invested, and the scheme continues as before. Anyone (grandparents, relatives, even family friends) can still contribute, within the £2,880 annual limit.
You can, but how that works depends on how old you are when you die. Assuming you have a money purchase (defined contribution) pension pot that you've not completely used up to buy an annuity...
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If you die before you reach 75, whether you've accessed the pension or not, you can pass on the pension pot to a beneficiary free of inheritance tax and income tax.
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If you die after age 75, there'll be no inheritance tax to pay on the pension, but your child or children will need to pay income tax on the money they receive from your pension, at their marginal tax rate (so if they're a higher-rate taxpayer, they'll pay 40% on your pension cash, assuming the amount doesn't push them in to additional-rate tax band).
Pensions aren't passed on in your will, so you need to nominate beneficiaries to get the pension cash with the scheme provider. You can find out more about how to do this in our What happens to my pension if I die? guide.
The simple answer is 'yes'. In fact, anyone can pay into someone else’s pension, as long as the provider accepts third-party contributions. If they have little or no income, you can still put in up to £2,880 a year and HMRC tops it £720 tax relief . If they’re working and earning, you (or they) can pay in up to the lower of £60,000 or 100% of their annual earnings, and the government adds tax relief.
Contributions may be treated as gifts for inheritance-tax purposes. But if they fall within annual gift allowances or are made from regular surplus income, they’re usually exempt. If you're unsure how this might affect you then it's always best to seek independent financial advice first.
What age can you start a pension for a child?
What happens to the pension when my child turns 18?
What happens if my child dies before taking the pension?
Do children get pension if their parent dies?
Can I pass my pension onto my children?
Can a parent contribute to an adult child’s pension?
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