Why opening a pension for a child before they start school can unlock powerful growth

Posted on

It really is never too soon to start investing through a pension. You may not be thinking about the retirement lifestyle that your children or grandchildren will enjoy quite yet, but opening a pension before they even start school can be worthwhile.

If you’re looking for a way to help secure a child’s financial future, a pension can ensure their later life is far more comfortable and provide them with a valuable foundation for later life.

Here are three reasons why investing through a pension on behalf of a child can lead to powerful growth:

1. Tax relief will provide an instant boost

Pensions opened on behalf of a child work in the same way as those for an adult. That means contributions will benefit from tax relief, which provides an instant boost to the money you’re setting aside.

Pension holders that don’t earn an income, including children, can add up to £2,880 a year to a pension. With tax relief, this brings the annual sum up to £3,600. By making the maximum contribution from birth until they’re 18, they’d receive almost £13,000 through tax relief alone.

2. Compound growth is powerful over the long term

When opening a pension for a child, the money is invested for decades. This provides plenty of time to benefit from compound growth. This is where an asset’s earnings are reinvested to generate additional earnings over time. The compounding effect means returns grow exponentially.

To put this into perspective, Morningstar calculates that if you make a one-off contribution of £2,880 (£3,600 with tax relief) when a child is born the pension would be worth £90,000 after 66 years, assuming an average growth of 5% a year.

If you contributed the annual maximum amount for the first 18 years of a child’s life, the value would be more than £1.1 million by the time they reached 66. The power of compound growth means they could still have a comfortable retirement even if they didn’t make contributions during their working life.

3. It provides a foundation for your child or grandchild to build on

Instilling good money habits in children can set them on the path to a financially secure future. By contributing to a pension throughout their childhood, you can help get them into the habit of saving for the long term early. It also means they won’t be starting from scratch when they enter the workforce, which can motivate them to keep adding to a pension.

It’s not just financial benefits offered by a child’s pension

Saving enough to retire on is a huge undertaking and can seem like a daunting challenge. That’s why starting a pension for your child or grandchild can improve their wellbeing and outlook.

More than half (58%) of non-retired people aged between 45 and 60 worry they won’t have enough money to provide an adequate standard of living in retirement, according to an Aviva survey. Even younger generations, who still have several decades to save, have concerns. Two-thirds (66%) of workers aged between 35 and 44 have concerns about retirement finances. Paying into a pension fund early could help alleviate some of these worries.

Having a pension foundation could also mean children or grandchildren have more flexibility later in life. The State Pension Age is rising and will reach 67 by 2028. By the time the children of today reach State Pension Age, it’s likely they’ll be in their 70s. Having a personal pension to fall back on means they may be able to give up work earlier if they want to.

3 questions to ask before setting up a child’s pension

Before you open a pension for your child or grandchild, you should consider the alternatives. A pension isn’t the right option for every family. These three questions can help you understand if a child’s pension is something you should research further:

  1. Do you have an emergency fund? Remember you cannot access funds you place into a pension until the pension holder reaches the minimum pension age, currently 55 (rising to 57 in 2028). Before investing additional funds into a pension, including on behalf of your child or grandchild, you should ensure you’re in a financially stable position.
  2. Have you made use of a Junior ISA (JISA) or saving products for children? There are other saving and investing products aimed at children which can provide more flexibility. Some, for example, will allow you to make withdrawals at any time, which can be useful. Others will become available when the child is 18 and could pay for other milestones, like further education, driving lessons or buying a home. A JISA is a tax-efficient option for investing and saving a nest egg for when your child reaches adulthood.
  3. Are you prepared for the money to be inaccessible until your child reaches retirement age? Keep in mind that any money contributed to a pension will be locked away. You should think carefully about this and ensure it aligns with your priorities and circumstances.

Please contact us if you’re thinking about opening a pension on behalf of your child or grandchild. It can be a useful tool and we’re here to help you see how it fits into your financial plan, as well as offering advice on products, contributions and more.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.


We aim to keep our clients up to date on interesting and relevant financial news.

You can sign-up to receive our monthly newsletter by email, even if you’re not yet a client. Sign-up using the form below.

Client testimonials

I have always found Black Swan to be caring and understanding of my quirky lifestyle. I always feel they try to get me the best returns while respecting my current needs.

Sally Muir

A client since 2011

We would be very happy to recommend the support and service we receive.

Valerie Locks

A client since 2010

I have always been completely useless regarding finance - thankfully our financial adviser is not! I've retired with far more than I ever expected and investments continue to grow safely. So - thank you!

Bernadette Jane Warner

A client since 2000

Very happy with the professional service I have received and feel a lot happier now with my finances put in order.

Martin Field

A client since 2011

Julie Cooper was recommended to me by a work colleague. She has been very helpful, professional and has explained everything well. I would definitely recommend her services to anyone else who are interested in a financial review.

Steven Rooke

A client since 2018

…Service has been first class.

Hugh Fells

A client since 2012

My face to face meetings with Rob Young and Jessica Lyons have always been very open and understandable. My questions have been answered clearly and I have left feeling that my financial matters are in good hands.

Sandra Jack

A client since 2000

[A] safe pair of hands in a complex financial world.

Gary Middlehurst

A client since 2003

A reliable company with good communication skills and good knowledge of the financial markets.

Alan Evetts

A client since 2014

Maureen Pembridge is a long-time trusted advisor to our family. The market might fluctuate but her attention to detail is consistent.

Linda Burnard

A client since 2000

I am pleased to recommend Julie as a trustworthy financial advisor. She explains financial jargon in plain language, and always listens carefully to my particular financial needs and has helped me make the best of my savings.

Carolann Samuels

A client since 2010

I have always been satisfied with the way that Black Swan has handled my account. And I have always found the staff very helpful whenever I need to call the office.

Robert Anthony Matthews

A client since 2012

An excellent personal service from a person I know and trust.

Michael Dalton

A client since 2010

I am getting a very good services from Black Swan, they have got my investments sorted out which was in a bit of a mess.

Roy Jakens

A client since 2012

A good, efficient team providing clear ideas to shape a winning strategy.

Adrian Michael Levenstein

A client since 2011

Black Swan is a company to be trusted, with friendly staff and professional advisors.

David Brian Jennings

A client since 2017

I have been with Black Swan for many years. I have never wished to change anything. They give a good straight forward service.

Martin Barrett Brooks

A client since 2010

Andy Peters has been invaluable in firstly combining several pension pots and then giving excellent investment advice. It has given us a great deal of comfort to know that our financial affairs are in such good hands.

James Guillum Scott

A client since 2014

I find my financial advisor easy to talk to and feel that she understands my lifestyle. She is always available for help when I need her and explains in words that I can understand.

Margaret Ena Glasgow

A client since 2000

Andy is a first rate Director, excellent communicator and leader.

Ross Perry

A client since

Black Swan Financial Planning and Andrew in particular, are very clever at working out how risk averse we are, and coming up with solutions that we feel comfortable with. We are happy in the knowledge that we can continue to enjoy a comfortable retirement. Andrew Peters is a very, very friendly person who is great to chat to and easy to deal with. He explains things very clearly in layman’s terms, and if we still don’t understand, he explains it until we do!

Alan & Jane Dyer

Clients since 2012

We have always found Rob [Young] to be very approachable and knowledgeable. We have every confidence in the advice given and feel comfortable with the decisions we’ve made. There are certain opportunities that we wouldn’t have known about if Rob hadn’t brought them to light, which makes the advice good value for money as far as we’re concerned.

Peter & Pauline O’Halloran

Clients since 2013

Rob [Young] is extremely knowledgeable. I knew nothing about the different types of trusts which will not only secure my income in retirement, but also leave a legacy for my children. I’m glad that I sought his advice when I did.

Sarah Wilson

A client since 2015

I am extremely happy with the service afforded to me by the company and my adviser Julie Cooper.

Geoff Coxell

A client since 2010

My wife and myself have been dealing with Black Swan for a number of years. We have met with different representatives from the company over the years and have found all very helpful in their own way. We met with James [Anderson] a few years ago and found him very helpful and knowledgeable. He keeps in contact with us on a regular basis. We find the Company information very helpful and we feel very secure with our finances.

Andrew Kirchen

A client since 2015

I have always found my adviser to be easy to contact, very professional in his approach, yet friendly and understanding. I have a sense of an experienced company behind him, really on the ball financially and with good standards.

B McBean

A client since 2011

Partner with the most reliable and experienced team of advisers

Enter your details & we'll be in touch to discuss your needs.
Alternatively, contact us directly and speak to a member of the team.

    Subscribe to our newsletter