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Investing for your children’s future

01/09/2020

Investment in children’s and teenagers’ future is currently a topic on the minds of many, with the first round of Child Trust Fund accounts maturing this September. While the scheme closed to new applications in 2011, there are plenty of other options out there for investing in a child’s future – and the current pandemic, with its job losses and reduced pay, is showing how important it is to have money put aside for when it is really needed. 

So, how can you invest for your child’s future in the current climate? Here are three options…

 

Junior ISAs

A Junior ISA is a long-term child’s savings account, which can only be set up by the child’s parent or guardian. Currently, the annual investment limit is £9,000, and the child can only access the funds once they turn 18. Investors can choose between a cash Junior ISA or a stocks and shares Junior ISA (or split contributions between the two). While the latter can offer greater returns, its value can also fall significantly. 

 

Junior Self-Invested Personal Pensions (SIPPS)

A pension may not be your first thought when investing for your child’s future, but with figures suggesting people may not be saving enough for retirement, some see it as a sensible choice. Junior SIPPS are managed by the parent, rather than the child, and cannot be accessed until the child turns 55 (or 57, come 2028). There may be tax benefits – such as reducing inheritance tax bills – and if you start early enough, Hargreaves Lansdown say you could build a £500,000 pension pot with payments of £300 a month. 

 

Bare trust accounts

The simplest form of trust account, bare trusts involve the creation of a designated investment account into which you gift money for your child. They may potentially reduce the amount of inheritance tax that is paid on your death, and the child automatically becomes entitled to the full sum of the trust when they turn 18. Generally, there will be two adults who act as trustees. As a trustee, you may be able to distribute some of the trust’s funds early if required, for example, if you need to pay school fees.

 

Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.

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