Parents can boost children’s pension by £300,000 with early pot contributions
Parents can add over £300,000 to their child’s pension pot through making savvy, early contributions, research reveals.
A child who turns 18 years old could enjoy more than five times the amount put into their pension after 20 years, due to investment growth and tax relief.
Data from PensionBee found that if a 50-year-old parent gifted their 18-year-old child £200 per month as a pension contribution, over a 20-year period that would equate to £48,000 in total.
That means when the child reaches the current retirement age of 64, there could be a pension pot of £329,573 to enjoy.
Even adding a quarter of that amount is beneficial. A £50 contribution each month would leave an overall pot of £82,393 over the same period – seven times more than the annual State Pension.
Earlier this month, YourMoney.com reported the wider benefits of ‘the Bank of Mum and Dad’, which include greater financial knowledge as well as the clearer advantages the supportive income provides.
‘Forward thinking generosity’
Commenting on the financial rewards parents bring, Becky O’Connor, director of public affairs of PensionBee, said: “The Bank of Mum and Dad is an untapped resource when it comes to boosting your retirement prospects.”
She added: “Their funds are usually reserved for first home deposits. But there are a few reasons to consider boosting your adult children’s pensions.
“Younger workers feel unsure whether the State Pension will even still exist for them when they get older. Boosting their pension is one way to provide greater peace of mind that they will still be able to afford to retire at all one day, in the face of this uncertainty.
“Equally, the minimum amount under auto-enrolment that people contribute to a workplace scheme, though very valuable, is unlikely to reach a pot size big enough for a moderate standard of living.
“The main advantage of additional payments to a pension when someone is young is that the growth has more time to compound. But many young workers may not feel like they are able to make additional contributions themselves if other outgoings and savings commitments are high. This is where paying into a pension for adult children can come into its own, in an act of forward-thinking generosity.”