Saving for Children and Retirement
Every parent wants to ensure that their children have the best financial start they can possibly have when the time comes to go it alone. Future financial problems that your child will face can include university fees, gaining a start on the property ladder, and paying the huge expense of a wedding. Most parents will want to help out with some of these costs, and financial planning with regards to saving for children and retirement should start as early as possible.
Trust FundsThe Child Trust Fund (CTF) is a government initiative that was designed so that every child will have a lump sum at the age of 18. If your child was born on September 1, 2002 or after then they should already be in receipt of CTF. If the child does have one then the government will have given £250 to start the fund off. There is a second instalment when the child reaches the age of seven and there is the possibility of further pay-in when the child is in secondary school.
Family members can contribute to this trust fund by placing a combined annual total of £1200 per year. If this limit is not reached every year then you cannot roll the unused part onto the next year. All money in the fund is completely tax free.
Types of Child Trust FundThe parent must decide whether the initial £250 voucher should be placed in a cash account, stakeholder account or a shares account. A cash account is the safest and there will be interest paid on it. With stakeholder and shares the money paid out will depend on how well the investments perform. The government's opinion is that it would wise to place the money in a stakeholder account due to the fact that the CTF is a long term investment. Historically investments have beat savings accounts in terms of payout over the long term.
National Savings' Children's Bonus BondsBonus bonds can be a good way of investing money for your children's future. Adults can buy the bonds for any children under the age of 16, the interest is tax free and the funds are protected by the government. A lump sum of up to £3000 can be invested in units of £25 with interest every year and bonuses paid every five year until the child is 21. The bonds can be cashed in at anytime by the person who controls the bonds, usually the parent. Although the bonds are owned by the child they cannot take control of it until they are 16.
Share Based InvestmentsIf you want to try a riskier option with your child's future savings then you could try investing in shares. Shares may pay back bigger dividends in the future but of course there is no guarantee. The only comfort may be the fact that shares have outgrown secure savings over the long run according to the statistics.
Children under the age of 18, 16 in Scotland cannot hold share investments under their own name. But the parent or grandparent can open an investment policy and simply name the child as the beneficiary when the child has come of age. There are numerous types of share investments available many of which are run by a fund manager who will choose where the money is invested.
Stakeholder PensionYes a child can hold a stakeholder pension set up by another person and the child will take control of the pension when they turn 18. They will not be able to access the money until they are 55 and they do not have to contribute to the pension unless they wish to.
The most that can be invested in the stakeholder pension will be £3600 per year but due to tax relief you will only need to place £2808 per year. Annual management charges are 1.5% for the first 10 years and 1% thereafter. A 25% lump sum can be paid out anytime between the ages of 55 to 75. Minimum contributions are £20 paid either in a lump sum or regular payments. A stakeholder pension is a very long term investment but if you want your child to have a nice bonus when they actually come to retire it is worth thinking about.
One thing children will always thank you for is extra cash and these investments are a simple way to save for your children's future. Planning for your children's future using the same investment and saving techniques that you employ may save you money in the long run, and is the best way to start saving for children and retirement. These savings may stop the need for more drastic action such as releasing equity on your home to pay for your child's education or wedding in the future.