Parents and grandparents have been urged to consider investing in a pension which could save up to over £1million for their children.
If a person invested £1,000 a year into a pension for their child over the first 18 years of their life, by the time the child reaches the current state pension age of 66 it would be worth £1,062,518.04.
Neil Rayner, head of Advice at True Potential, said: “Investing in a pension for your child offers a remarkable opportunity to build a substantial financial nest egg and impart valuable lessons about saving and investing.
“By starting early and taking advantage of the power of compound interest, you can provide your child with a secure future and demonstrate the importance of long-term financial planning.”
If the child continues the £1,000 a year contribution once they turn 18, by the time they reach the age of 66 the pot will have grown to £1,470,571.00.
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Parents are urged to act as soon as possible as if they wait until their child is five before putting in £1,000 a year until they turn 18, the investment would be worth just £624,896.96 when they turn 66, which is over £430,000 less.
Another benefit of a private pension is a person has to be 55 to draw down from this savings scheme, by which time the child will likely be mature enough to spend the funds wisely, or to understand they can get a better return by leaving it alone for longer.
Mr Rayner said: “Investing in a pension eliminates concerns about how the money will be managed upon reaching adulthood.
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“So, consider exploring this often-overlooked option and secure your child’s financial well-being for years to come.”
Pensions are also a good way to pass on wealth in a tax-efficient way, as funds invested in a pension are not subject to inheritance tax.
YouGov research commissioned by True Potential found 85 percent of people with children under 18 do not know they can open a pension in their child’s name.
Parents often look at Junior ISAs and high street savings accounts as a way to save up funds for their children, while not knowing about the possibility of setting up a pension for them.
Investing in a pension also helps encourage financial wisdom in a child, by showing them from an early age how investments work.
The YouGov research found just three percent of parents of under 18s are currently investing in a pension for their child.
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