Stakeholder for a child

One of the real innovations of the new regime is that pensions can be set up for children, and the premiums can be paid by the parents. This makes Stakeholder probably the best and most tax efficient method by which most parents can pass monies to their children.

(It is actually very difficult for parents to give much money to their children and make that tax efficient - if they do, then the interest and growth on that money is taxed as if it accrued to the parent, not to the child. Stakeholder is a wonderful exception, you can give the money AND the government throws extra tax relief into the pot - something for nothing - and it grows in the most tax efficient manner).

Also, since the children can't access the fund until they are 50 there is no risk of the angelic toddler of today blowing it on a fast women, slow horses and good drugs phase in that risky period between teenagerdom and maturity.

The calculator below shows how large a fund could be created for a child by setting up a Stakeholder for them. This could be funded from your income or savings.

It assumes that you pay until the child is 21, at which point contributions cease. It then projects that accumulated fund through to age 60 and indicates the benefits that it might provide to them.

Note that this projects funds so far into the future that the numbers get quite meaningless. To understand what the benefits might be in todays money use a growth rate of perhaps 3 or 4 to represent growth in excess of inflation (if growth is 7%, and inflation is 3% then real growth, the growth is profit, is 4% a year). On a maximum Stakeholder for a newborn this shows that a projected fund of an amazing £1,440,000 at 7% is really going to be more like £330,000 in terms of purchasing power (at 4%), which is still a wonderful deal.

Monthly Stakeholder investment (max 300):
Years to age 21
Annual Growth Rate, enter 7% as 7:
Assumed Annuity Rate, enter 7% as 7:

Fund value
Pension
Tax Free Cash

Calculator Notes

• Use GROSS monthly premium. Put 100 though this will only actually cost £78 (assuming that child is not a higher rate taxpayer. If they are, they should fund their own and get 40% relief!).
• This calculator assumes that charges are 1%pa of fund value, ie as per Stakeholder. Your actual charges may vary

The Acumen Investment Partnership provides a range of services to help you plan for the future. Read about the services we offer here.

These calculators are offered for simple guidance. To obtain a more accurate appraisal of your position, please contact us.