Tax efficient savings opportunities
You may be able to pay up to £3,600 a year gross* into a Stakeholder pension for your children/grandchildren even if they are not earning, and the contribution will benefit from basic rate tax relief.
So, under present tax arrangements, for each £1 you pay, HM Revenue & Customs (HMRC) will pay an extra 25p, even if your child does not normally pay income tax, assuming 20% basic rate relief for tax year 2008/2009.
*If you want to pay £3,600 a year gross (known as the 'basic amount') into their pension fund, then it will actually cost you £2,880 a year, as the available income tax relief for the tax year 2008/2009 will increase your contribution to £3,600 a year.
For example
If you pay in £50 a month, the income tax relief will increase your contribution to their pension fund to £62.50 a month.
Think about investing your child benefit
Currently £18.80 a week for the eldest child who qualifies (tax year 2008/2009) - it probably doesn't go that far, but what about if you invested it?
Use the Children's Stakeholder Calculator below to see how much your child could retire on (this can include other contributions in addition to child benefit). It allows you to see the effect of investing your child benefit (or higher amount) on their behalf, paying in a monthly premium for them until they are 18. Once you have started them on the road to pension planning, the difference this headstart makes if they continue investing in the Stakeholder pension plan, will be significant.
It is important to note that any money invested will be tied up until the child takes their pension benefits, and that the value of their pension fund may fall as well as rise and is not guaranteed.
Notes
This information is based on our understanding of current tax law and HM Revenue & Customs (HMRC) practice.
The value of tax relief will depend on the individual circumstances of the investor and is subject to statutory change.
Find out more
To find out more about stakeholder pensions in general, take a look at our Guide to Stakeholder Pensions or find out more about Legal & General's Stakeholder Pensions for individuals.
Help
Help: Child's gender
This affects the cost of the pension/annuity, because on average women live longer than men and therefore the cost of their pension is usually higher.
Help: Child's current age
This is the current age of the child whom the Stakeholder pension is for. If the child is under one year of age then please enter 0.
Help: Retirement age
Benefits must be currently taken between the ages of 55 and 75 years.
Help: Invest child benefit?
This assumes that you invest £101.83 per month which is currently the child benefit for your first child plus basic rate tax relief. This is payable until the child is age 16, increasing each year in line with the Retail Prices Index at a rate of 2.5% a year.
(Appropriate to tax year 2008/2009).
Help: Invest a fixed monthly contribution
Enter the actual amount you would like to contribute on behalf of your child until he/she is 18. The calculator will automatically add on basic rate tax relief at 20%. The minimum monthly contribution to our Stakeholder Pension is £20 gross (after the addition of basic rate tax relief). Contributions made on behalf of your child can receive tax relief, up to 100% of their earnings in a tax year, or £3,600 if that is greater. The law and tax rates may change in the future and the value of tax relief will depend on your child's individual circumstances. If total contributions paid by them or on their behalf exceeds an amount known as the Annual Allowance (£235,000 in the 2008/2009 tax year) then HM Revenue & Customs will impose a tax charge of 40% on the excess contribution. Contributions paid in the tax year in which they take all their benefits under a pension plan do not count towards the Annual Allowance.
Help: Anticipated fixed monthly contribution
Enter the actual amount your child might like to contribute after they reach the age of 18. The calculator will automatically add on basic rate tax relief at 20%. The minimum monthly contribution to our Stakeholder Pension is £20 gross (after the addition of basic rate tax relief). Your child can contribute, and receive tax relief on, up to 100% of their earnings in a tax year, or £3,600 if that is greater. The law and tax rates may change in the future and the value of tax relief will depend on your child's individual circumstances. If total contributions paid by them or on their behalf exceed an amount known as the Annual Allowance (£235,000 in the 2008/2009 tax year) then HM Revenue & Customs will impose a tax charge of 40% on the excess contribution. Contributions paid in the tax year in which they take all their benefits under a pension plan do not count towards the Annual Allowance.
Help: Projected fund value at retirement
This gives you an estimate of your child's future fund value in today's money, assuming inflation at a rate of 2.5% a year.
Help: Monthly income at selected retirement age
This gives you an estimate of your child's future pension value in today's money (allowing for inflation at a rate of 2.5% a year). This will be subject to income tax when they take this pension income.
Help: Tax free lump sum
This gives you an estimate in today’s money (allowing for inflation at a rate of 2.5% a year) of the future tax free lump sum value.
Help: Monthly income with lump sum
This gives you an estimate in today's money (allowing for inflation at a rate of 2.5% a year) of your child's future reduced pension value, after payment of a tax free lump sum from the fund value.