INVESTING FOR CHILDREN
- it's never too early
The need to save for the future of our children and grandchildren has never been greater. The spiralling cost of university fees could mean that many parents will struggle to support their child through university if that is their desire. With the maximum tuition fee set to rise to £9,000 per annum in 2012, the current average student debt of more than £21,000 is estimated to increase to over £50,000 for students starting university from next year, according to the Public Accounts Committee. (Source: Money Management August 2011).
Being able to pay for a university education is only one of the reasons we should be investing for our children. Start investing early and you could help them get a foot on the property ladder, buy their first car or plan a wedding. At Alliance Trust Savings we understand the importance of providing for our children’s future. We currently offer a Child SIPP and a First Steps Account and, later in the year, will launch a Junior ISA.
The Child SIPP
Towards the end of 2010 the Department for Work and Pensions revealed that more than ten million of today’s population will reach the age of 100 and receive a telegram from the King or Queen. Of this ten million, over three million are currently under the age of 16, some of whom are expected to live so see their 110th birthday.
It is clear that it is important to start saving at a young age. But what are the benefits of saving on a child’s behalf within a SIPP rather than a straightforward dealing account or soon, a Junior ISA?
A Child SIPP attracts tax relief on contributions. The maximum amount an individual can contribute to a Child SIPP is £3,600 gross per annum, however, due to tax relief you are only required to contribute £2,880 as tax relief from the Government will top this up to £3,600. If you are considering inheritance tax issues, the £2,880 contribution limit works well with the current £3,000 annual exemption for inheritance tax.
A Child SIPP has to be set-up by the parent or guardian but once the account is open other third parties including grandparents can make contributions. Looking at the 2010/11 tax year, over a third of our Child SIPPs received the maximum gross contribution of £3,600. By paying the maximum amount each year from the child’s birth until they are 18, their pension could be worth £1.75m by age 65 assuming an annual growth rate of 6% (this is the FSA’s mid projection rate of 7% minus 1% assumption for charges). Remember, the value of investments and any income from them is not guaranteed and can go up and down depending on investment performance. You normally cannot take an income from a pension until age 55; therefore once a contribution has been made it cannot be refunded.
To find out more about Child SIPPs please click here
First Steps Account
We also offer our First Steps Account which is an investment trading account for children. Unlike the Child SIPP, there is no annual limit on how much can be paid into the account. You can hold the investments in your own name or set it up under a trust.
To find out more about First Steps Account please click here
Junior ISAs will be introduced by the government on 1 November 2011 as a replacement for Child Trust Funds. The Junior ISA will allow parents, grandparents or family friends to subscribe up to £3,600 each tax year but unlike a Child SIPP the child will be able to make withdrawals from the ISA from the age of 18. Although, there is no tax relief on contributions like a pension, no capital gains tax or additional tax on dividend income applies, making a Junior ISA a tax sheltered product for child savings.
We are currently developing our Junior ISA and it is our intention to launch it later this year. We will provide you with more details over the coming months.
Investing with Alliance Trust Savings
There are lots of issues to consider before deciding which account is most suitable for your needs. Our Child SIPP, First Steps Account and later in the year, our Junior ISA, all provide access to our i.nvest platform which allows you to select from an extensive range of investments including:
- Whole of market investment trust offering
- 1400 + funds
- Gilts and other fixed interest securities
- UK and international equities
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