How To Make Your Baby A Millionaire
By Alison Steed
PUTTING £88 a month away for your child could turn them into a millionaire, by taking advantage of Government tax relief on the savings.
Although it may not be the first thing you think of, putting £88 a month into a self-invested personal pension (Sipp) for your child will result in a pension pot worth more than £1m by the time they retire.
For pension savings, the Government will put £20 into a pension for every £80 you pay in if you are a non-taxpayer, like a child, or a basic rate taxpayer. The maximum you could put away for your child each year is £3,600. So putting £88 a month into a Sipp would attract tax relief from the taxman which would result in a total contribution of £110 a month. Estimating a 6 per cent return after charges of 1 per cent, you would have a pension fund of £1.09m by age 65.
Steve Latto, head of pensions at Alliance Trust Savings, which calculated the figures, said: “Financial planning for children is always a high priority for parents who wish to safeguard their children's financial future. We have a significant number of parents already using an Alliance Trust Savings SIPP for their children in order to take advantage of the tax relief and flexibility that Sipps offer.”
How To Make Your Child A Millionaire
| Individual Pays | Gross payment (after tax relief has been added) |
Pension Fund at age 65 |
| £40 | £50 | £458,000 |
| £80 | £100 | £917,000 |
| £88 | £110 | £1,009,000 |
| £120 | £150 | £1,375,000 |
| £160 | £200 | £1,834,000 |
| £240 (maximum payment that will attract tax relief before child reaches 18) |
£300 | £2,750,000 |
| Source: Alliance Trust |
