Martin Lewis issues pensions alert to anyone with children | Personal Finance | Finance

Martin Lewis has issued an important pensions alert to everyone in the UK who has children.

The MoneySavingExpert (MSE) founder is urging parents to open a pension for their children to ensure they have a valuable savings pot when they are older.

Lewis says almost anyone can save into a pension – even if they have no income – meaning even a newborn baby can have a pension.

The advice comes as part of Lewis’ bumper pensions tips and tricks in his latest MSE newsletter this week, which explains some must-knows to boost private and work pensions by thousands before you retire.

Lewis stresses that the earlier you start saving into a pension the better as it gives you more time to grow your retirement fund. While he cautions that you should look after your own finances first, he says that parents who are able should consider opening a pension for their children as “saving for retirement is crucial”.

Writing in his latest newsletter, he said: “Children can have pensions too! Almost anyone can save into a pension and get tax relief, even if they’ve little or no income. The minimum allowance is £3,600/yr (meaning it only costs you £2,880). This means even a newborn baby can get a pension.

“And indeed I know grandparents who open them for their grandchildren, liking the idea it’ll trigger a memory of them in 50 years’ time.

“The advantage of this is as the earlier you start, the more time it has to grow, so starting super young should be very valuable once your ickle ones are old ‘uns like me. It’s no surprise that more than a couple of kids of the parents in MSE Towers have pensions.

“However, I’d caution to always first look after your own finances, then look at top children’s savings and fill up a junior ISA, as they’re shorter-term priorities. Yet if you’re lucky enough to have enough to do that, then a pension for the children may be a good option.”

Financial advice firm St. James’s Place says a child can have a pension from birth as there is no minimum age, but only a parent or guardian can set one up. However, once it’s up and running, anyone can contribute to it, including grandparents, godparents, friends or other family members.

Parents or guardians will look after the pension until the child turns 18, at which point control will pass to them but they won’t be able to access the money in their pension until they reach the minimum pension age.

The firm explains: “Like an adult pension, eligible contributions receive a 20% boost from the government – even though your child is not yet a taxpayer. This tax relief from the government is something you won’t get from an ISA, another tax-efficient saving tool.

“In addition, any growth generated within the pension won’t be subject to Income Tax or Capital Gains Tax. A pension will of course be subject to income tax when it is accessed in future years.

“As a child will rarely have earnings, you can usually only pay up to £2,880 into a child’s pension for the 2024/25 tax year. When you factor in the 20% in tax relief from the government, this adds up to £3,600.

“Saving into a child’s pension is a rewarding way to spread your wealth among your children and grandchildren. And it’s a gift that keeps on giving, since it helps mitigate an Inheritance Tax (IHT) liability by reducing the size of your estate. Payments may be covered by the annual £3,000 tax-free gifting allowance, or the exemption for regular payments if made out of surplus income.”