One of the real innovations of the new regime
is that pensions can be set up for children, and the premiums
can be paid by the parents. This makes Stakeholder probably
the best and most tax efficient method by which most parents
can pass monies to their children.
(It is actually very difficult for parents
to give much money to their children and make that tax
efficient - if they do, then the interest and growth on
that money is taxed as if it accrued to the parent, not
to the child. Stakeholder is a wonderful exception, you
can give the money AND the government throws extra tax
relief into the pot - something for nothing - and it grows
in the most tax efficient manner).
Also, since the children can't access the
fund until they are 50 there is no risk of the angelic
toddler of today blowing it on a fast women, slow horses
and good drugs phase in that risky period between teenagerdom
and maturity.
The calculator below shows how large a fund
could be created for a child by setting up a Stakeholder
for them. This could be funded from your income or savings.
It assumes that you pay until the child
is 21, at which point contributions cease. It then projects
that accumulated fund through to age 60 and indicates
the benefits that it might provide to them.
Note that this projects funds so far into
the future that the numbers get quite meaningless. To
understand what the benefits might be in today's money
use a growth rate of perhaps 3 or 4 to represent growth
in excess of inflation (if growth is 7%, and inflation
is 3% then real growth, the growth is profit, is 4% a
year). On a maximum Stakeholder for a new-born this shows
that a projected fund of an amazing £1,440,000 at
7% is really going to be more like £330,000 in terms
of purchasing power (at 4%), which is still a wonderful
deal.
