Pensions and Benefits Will Not Keep up With Cost of Living: Opening a Pension for a Loved One Protects Future Generations.

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January 27, 2022 - Furnley House

Pensions and Benefits Will Not Keep up With Cost of Living: Opening a Pension for a Loved One Protects Future Generations.

Benefits need to rise in order to match the soaring cost of living, a think tank has warned. The Institute for Fiscal Studies (IFS) reported in January that 10 million people are affected by price hikes that were not matched by benefit rises.

The rising cost of living has dominated the headlines recently. House prices continue to rise as well as the basics such as food, petrol and fuel prices for our home. The outlook can feel bleak, especially when we look to the future and think how our children and grandchildren will manage.

It can be very difficult to have financial control in difficult economic times and even more challenging to feel empowered. This is certainly what we are hearing from our clients at the moment, and financial uncertainty is taking its toll.

Many of our clients want to help their families and are looking for meaningful ways to do this. Often this is more than just wanting to write a cheque, and they want to draw upon their own knowledge and life experience to be able to provide some financial security for their children and grandchildren.

The answer can lie in pensions. Opening a pension for a child, young person or adult, even with a small amount of money, has the opportunity to see years of stock market growth. The combined effect of contributions, investment growth plus tax relief from the government means even a small investment could become a decent nest-egg by the time the person retires.

Having the foresight to open a pension early helps establish a solid financial structure for a young family member, even when retirement is likely to be a long way off and planning for it may be at the bottom of their most pressing financial needs. Housing and university debt may be the more pressing issues and are likely to be the priority bills when starting out in life. But what pensions benefit from is long term investment growth, and a small amount invested into a pension will quietly get to work to provide a solid base layer of security for later in their life, benefitting from compound growth year upon year.

How do I open a pension for a child?

There are a few different options, but the most common is a Stakeholder Pension fund. A child’s pension can be opened from as little as £20, and you can pay in up to a maximum of £2,808 per annum net of income tax in a single tax year. Like an adult’s pension, it attracts tax relief which boosts the total paid into the fund in a year to £3,600 based on a contribution of £2,808.

The children’s Stakeholder Pension can be opened by anyone who is interested in the child’s future. Grandparents, godparents, aunts and uncles can open an account. As long as the legal guardian of the child is aware the payments are being made, anyone can contribute.

You can also open a Self Invested Personal Pension for a child, which is sometimes referred to as a SIPP. A parent or guardian has to open a SIPP, and they are ultimately responsible for deciding how the money in the SIPP is invested. At Furnley House we typically open an account for a child with parental authority and the investment is managed on a child’s behalf. Contributions to the pension fund can come from anyone. Control of the fund passes automatically to the child when they turn 18, at which point they can make any decisions themselves on where they want their pension contributions to be invested, with or without the help of a financial adviser. But, as with a stakeholder pension, the cash will stay invested until they reach the age where they are allowed to withdraw it from a pension, which is set at 55 now, rising to 57 in 2028.

Like many other tax incentivised savings plans, you have until the end of the tax year on April 5th to use the current pension contribution annual allowance, but you don’t have to pay in the full amount. Most providers will let you contribute just £25 a month, and you can start and stop payments at any time, and put in lump sums if a child is given a larger sum of money for a special occasion like a birthday.

How do I open a pension for an adult?

You can contribute into a personal pension for an adult, but they would need to open the account first and a financial adviser can help to do this. Alternatively, you can make a contribution into an existing pension plan if they already have one, either with a lump sum or by making regular contributions.

In the UK there’s no cap on the amount of money taxpayers can save into a pension each year, however there is a limit on how much is tax-free. The limits are currently 100% of your income, with a cap of £40,000. Whenever contributions are made into a pension tax relief is applied from the government. This can come as extra money in your pot of 25% tax top up from HMRC, or a reduction in tax today, depending on the pension plan.

Would you like to find out more?

If you would like to discuss more about investing for a family member, please get in touch by calling 0116 269 6311 or email Our team of independent financial advisers are highly experienced at finding the best investment solutions for you and your family and can guide you through your the options and choices available to you.



Past performance is not a reliable indicator of future performance.

The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

All information correct at time of writing.