Royal London has launched a campaign to make parents aware of the ‘hidden advantages’ of paying into the pension pot of their adult children.
For those parents who have spare cash, putting money into their children’s pension will boost the retirement prospects of their offspring (topped up by tax relief) and could also earn their children a tax refund (if they are higher rate taxpayers) and could reduce the hit they face if they are a higher earner receiving child benefit.
Under current rules, there is nothing to stop a parent making a contribution into the pension of an adult child.
With millions of younger workers having been newly enrolled into a workplace pension, many now have a pension for the first time but are only making very modest contributions.
An additional contribution from their parent early in their working life, benefiting from compound interest as it grows, could help them to build a more meaningful retirement pot and is money that cannot be touched until later in life.
Commenting, Steve Webb, Director of Policy at Royal London says: “It is a little-known fact that a parent who puts money into their child’s pension could be doing them a favour three times over.
First, the recipient will get a boost to their retirement pot, including tax relief at the basic rate.
“Second, recipients who are higher rate taxpayers can claim higher rate tax relief on their parents’ contributions which will increase their disposable income.
And third, recipients affected by the high-income child benefit charge can see this penalty reduced because of their parents’ generosity.
“Not every parent has spare cash to pay in to their children’s pensions, but many will be in a better financial position than their children can expect to enjoy.
By paying in to their children’s pension they can give them a triple boost and improve their long-term financial security.”
Source: Sabuhi Gard – Adviser Point of View – 17.06.2019
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