Tax efficient savings opportunities
You may be able to pay up to £3,600 each tax 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 the child does not normally pay income tax, assuming 20% basic rate relief for tax year 2009/2010.
*If you want to pay £3,600 each tax 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 2009/2010 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 £20.00 a week for the eldest child who qualifies (tax year 2009/2010) - 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 and/or paying in a monthly contribution. 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, could be significant.
Please note that the Legal & General Stakeholder pension may offer wider options than those shown in this calculator.
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.
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 sex
This affects the cost of the pension/annuity, because on average women live longer than men and therefore the cost of buying 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 can normally be taken between the ages of 55 and 75 years. Also, please note that the minimum term to selected retirement age for a Legal & General Stakeholder pension is five years.
Help: Invest child benefit?
This assumes that you invest £108.33 gross each month which is the current rate of child benefit for your eldest qualifying child plus basic rate tax relief. This is payable until the child is age 16, and we have assumed that this will increase at a rate of 2.5% a year.
(Appropriate to tax year 2009/2010).
Help: Invest a fixed monthly contribution
Enter the actual net 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 gross contribution to our Stakeholder Pension is £20. This means that the minimum monthly net contribution is £16 (allowing for 20% basic rate tax relief for the tax year 2009/2010). In each tax year, gross contributions can be made of behalf of your child of up to 100% of their annual earnings or £3,600 if that is greater, and these will get full tax relief. 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 (£245,000 in the 2009/2010 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 net 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 gross contribution to our Stakeholder Pension is £20. This means that the minimum monthly net contribution is £16 (allowing for 20% basic rate tax relief for the tax year 2009/2010). In each tax year, your child can make gross contributions of up to 100% of their annual earnings or £3,600 if that is greater, and these will get full tax relief. 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 (£245,000 in the 2009/2010 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 pension fund value at selected retirement age
This gives you an estimate of your child's future pension fund value in today's money, assuming inflation at a rate of 2.5% a year.
Help: Monthly pension income at selected retirement age
This gives you an estimate of your child's future pension income in today's money (allowing for inflation at a rate of 2.5% a year). This will be subject to pension income tax when they take this pension income.
Help: Cash 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 cash lump sum value.
Help: Monthly pension income with cash 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 cash lump sum from the pension fund value.