• Charlotte - The Family Money Coach

Retirement - a time to enjoy all the things you didn't have time for when you worked.

But what if the pension you're funding, isn’t your own?


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I know, that headline feels controversial doesn’t it? After all, who is realistically going to fund someone else’s pension before their own?


Two weeks ago I was lucky enough to be invited to record a Q&A episode on all things money for the MadebyMammas podcast – where I answered questions that had been sent in by parents. One of the questions that came up was around pensions for children – and whether it was worth setting one up, and if so, how to go about starting to do it.


Putting my old Paraplanner hat back on, I was exuberant about the benefits of children’s pensions – after all, there’s the tax relief, the warm fuzzy feeling of helping out your children; the security of knowing that money is locked away for them, and the fact that there is no tax liability for the parents.


And that’s without considering the massive effects of compounding (and I mean massive – according to Aviva, investing the maximum allowed into a pension for the first 18 years of your child’s life could return as much as £425,000 by age 60 depending on investment return – some providers even quote up to £1 million pounds – although all of those returns are dependent on the stock market, so are never guaranteed).


But for all of those positives, there surely is one big fat negative that I would be remiss if I didn’t mention. And that big fat negative is?


You.


Yep, that’s right. In the equation of deciding when to start funding your child’s pension, you are the drawback.


The reason for that is simple. If you aren’t funding yourself before you start funding them – if you aren’t looking to your pension, your retirement; planning your budget for actually affording those things you will then have the time to do – then your children will end up paying you back for their pension by helping to fund you in your retirement.


Now I don’t mean to catastrophise, because many many parents are going to be a financially comfortable enough position to fund their retirement and put a little bit of money aside for their children too – but some aren’t. And, as I keep on saying in nearly every blog post that I write, you have to focus on staying in your parenting lane, focus making the right financial decisions for you, for your family and your future.


That means really weighing up when is the right time to start thinking about investing in a pension for your child. Not if – because they are, in the vast majority of cases, always a good thing to do, even if in later years your children exceed the applicable Lifetime Allowance limit on pension value (because if they do, they are not going to blame their parents for having the foresight to start investing early for them).


It means focusing on ensuring that in gifting your children a pension, you aren’t also inadvertently gifting them a financial burden in the shape of yourselves too. Later life care in the UK (and for that matter, in many many other countries too) is getting ever more expensive, and the conditions that you have to meet to have some or all of your care funded for you are getting ever narrower and more complicated to meet; so it’s a safe bet that most of us are going to need to financially look after ourselves.


This, combined with the somewhat measly State Pension provision, along with the almost complete disappearance of Defined Benefit schemes (or Final Salary pensions, as you might better know them) means that it is super duper important that, in the words of the air hostess on the plane, you fit your own oxygen mask, before helping the passenger next to you.


I know, I know. It feels controversial, wrong even, for a family money coach to be telling parents to look after themselves, before looking to their children. But I’m not really telling you to do that. I’m not telling you to hoard all your cash and sit on it like a Wall Street Fat-Cat, leaving your children stranded outside like extras from Oliver.


I’m simply reminding you of your most important duty as a parent – to provide the right environment for your children to become independent adults. To help them one day be able to fly the nest, to create their own future. The biggest part about that analogy is that birds can’t fly with a deadweight tied around their ankle – and worrying about caring for our parents is the metaphorical equivalent of that deadweight.


So what does all of this add up to? It adds up to a post that is designed to get you thinking about what to do with the money you can afford to save. It is always noble to want to provide for your children, and child pensions are a great vehicle for doing that – but not if doing so will ultimately cost your children in the long run.




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