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Your Money: QUIDS FOR KIDS
(Sunday Mirror Via Thomson Dialog NewsEdge) PENSIONS may not be the first thing that springs to mind when you have a baby - but save a little each month and your bundle of joy could end up with a bundle of cash when they retire.
Five years ago the introduction of stakeholder pensions enabled people for the first time to make contributions on behalf of children and still get tax relief. Since then, hundreds of thousands of parents, grandparents and friends have started paying into pensions for youngsters.
Anna Bowes, of independent financial advisers AWD Chase de Vere, said: "Pensions offer a great opportunity to build up a savings pot for the future, even though most children would probably far rather the money was spent on presents and sweets. However, when they get to retirement age, they will really appreciate it."
Providers claim more and more people want to help plan for their kids' old age as early as possible. Virgin Money says that, in the last 12 months, one in 10 pension schemes started with them have been for kids... and half of those were for under-fives.
You can set up a pension for a baby as soon as they are born and anyone can contribute, whether they are related or not. Monthly contributions needn't break the bank either - some schemes allow you to pay in as little as pounds 1 a month, while some people even use their child benefit.
At 18, when the child becomes an adult, the responsibility for pension contributions will then pass to them. One of the best things about pensions is the tax relief. For every pounds 78 you pay in as a basic rate taxpayer, the Inland Revenue pays pounds 22 to make up pounds 100 of contributions. Higher rate taxpayers do even better - for every pounds 60 they pay in, the taxman tops up their fund by another pounds 40.
A spokesman for Virgin said: "Pensions are one of the most tax-efficient kids' savings schemes around and offer unrivalled incentives.
"Invest pounds 2,808 in a year and the tax relief will top it up to pounds 3,600 - boosting your child's savings by nearly 30 per cent."
Our table above right shows what sort of pension your child could expect if you put away pounds 20 a month and they kept this up from 18 until retirement at 65. Longer life expectancy means girls' retirement fund will buy them a smaller pension.
HOW IT ADDS UP
Based an saving pounds 20 a month (pounds 25.64 inc tax relief), assuming 6pc growth minus 2.5pc for inflation.
Source: AWD Chase De Vere
Copyright 2006 . MGN Ltd.
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