Pension savings should start as soon as a baby is born according to Alliance Trust Savings, after research showed that saving for your child could make them a millionaire in retirement.
By saving £88 a month they believe that parents could help provide a £1 million pension pot for their children.
Many parents may be considering setting up a SIPP for their children as an alternative to children’s savings after the Child Trust Fund was axed.
And with news that pensioners face poverty in retirement because savings are not sufficient to match the growing life expectancy of the UK’s ageing population perhaps parents should be setting their children’s retirement up for them.
Pensions also allow you to save more each year with a limit of £2,880 compared to just a maximum CTF contribution of £1,200 a year.
The tax relief offered by SIPPS also makes pension savings a more attractive long term investment for many savers. For example, if parents were to save £80 a month the Government would top this contribution up to £100.
Additional payments from grandparents and other family members for birthdays and special occasions can also help boost the funds paid into a child SIPP and will also qualify for tax relief.
Alliance Trust Savings figures show that if a payment of just £40 a month was made by parents the child would have a pension fund of £458,000 by the age of 65.
And if this amount was upped to as much as £88 each month then the child would have just over £I million in a pension pot at 65.
Steve Latto, head of pensions at Alliance Trust Savings said: "Financial planning for children is always a high priority for parents who wish to safeguard their children's financial future. We have a significant number of parents already using an Alliance Trust Savings SIPP for their children in order to take advantage of the tax relief and flexibility that SIPPs offer.”
Although the calculations are based on assumptions of certain rates and charges, which may not necessarily apply in the future, Alliance and Leicester say it highlights the benefits of long term saving.
And with today’s news that the retirement age will be scrapped those who are not yet in the workplace could see themselves having to work well into their 70’s to fund retirement.
Ian Naismith, head of pensions at Scottish Widows, said: "Setting up a pension plan for a child gives them a head-start in saving for retirement and allows plenty of time for their pension funds to grow.
"Money in a pension is also guaranteed to be available for retirement, with no temptation to fritter it away."
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