Financial planning is a family affair. Although you will often focus on how to secure your own position and fund your retirement, you will also consider how to help your loved ones start their own journey towards financial security.
The earlier you start planning, the easier it could be to give your children or grandchildren a valuable head start in life.
According to Flagstone, UK parents save an average of £18,212.49 for their children. The intended uses for those savings vary. The survey showed:
- 40.1% are saving for education
- 38.9% want to help their child buy a home
- 34.9% are setting aside a general emergency fund
- 10.7% plan to help with wedding costs
- 6.6% haven’t thought about a specific use for the savings.
Whatever your reasons for wanting to build wealth for a child or grandchild, it’s important to consider which savings vehicle is most suitable.
For example, you could pay into a Junior ISA (JISA) on their behalf or make third-party contributions to their pension.
Read on to learn more about both options and how to decide which is most suitable for your family.
You can pay up to £9,000 into a Junior ISA each year to build wealth for a child
A JISA is a tax-efficient savings and investment account that you can open and contribute to on behalf of a child or grandchild.
Like an adult ISA, there is no Income Tax to pay on interest your child generates on their savings, nor is there any Dividend Tax or Capital Gains Tax (CGT) on investment returns. There will be no tax to pay when your child or grandchild eventually withdraws the funds either.
In 2025/26, you can contribute up to £9,000 a year to a JISA for each individual child, and this is separate from your own adult ISA allowance.
You can save these funds in a Junior Cash ISA, invest through a Junior Stocks and Shares ISA, or a combination of both.
It’s up to you to manage the account on behalf of the child until they’re 16, when they can take over. Once they turn 18, the account automatically changes to an adult ISA and they’ll be able to withdraw the funds.
Making third-party pension contributions could help your child or grandchild build retirement savings early
When your child or grandchild is young, you may not think about their eventual retirement, especially if you haven’t even finished working yourself.
However, the younger generations may face distinct challenges when preparing for retirement. As life expectancies and the cost of living both continue rising, your children and grandchildren may need to fund their retirement for longer, and their expenses could be higher.
Increases to the State Pension Age may also mean that future generations will be more reliant on their personal pension savings.
As such, helping them start their retirement saving journey early could be incredibly beneficial.
When you contribute to a child’s pension, they benefit from 20% tax relief on the contributions, just as you would if you paid into your own retirement pot. This means that a £100 contribution only “costs” £80.
Our article on how pension tax relief works has more information on this.
This tax relief could mean that contributions to a child’s pension are effectively worth more than payments into a JISA.
Additionally, the funds are invested, and if you start building the pot while a child is young, you give these investments far longer to grow.
Despite this, there are certain limitations to consider.
For instance, a child only benefits from tax relief on contributions up to their Annual Allowance. As they are likely not working (unless you’re contributing to an adult child’s pension), this stands at £3,600 – made up of £2,880 of your own contributions, plus tax relief.
The Annual Allowance for somebody who is working is £60,000 (or 100% of their earnings, whichever is lower).
Further to this, your child won’t normally be able to access their pension savings until they reach the “normal minimum pension age” (NMPA). Currently, this is 55 but is set to rise to 57 from 2028 and could increase further in the future.
We can help you decide on the most suitable ways to save for your child or grandchild
JISAs and pensions can both be useful when building wealth for your child. When deciding which option is most suitable for you, it’s important to consider the purpose of the savings and when your child will need to access the wealth.
For instance, if you’re saving for a specific expense such as a house deposit or wedding, a JISA may be preferable as your child can withdraw the funds once they’re 18.
Conversely, you might decide to contribute to their pensions when they’re young and then gift wealth to help with milestones like buying a home or getting married later.
Of course, you can also spread savings across a JISA and pension.
You’ll also need to decide how much you want to contribute each year and what the implications of this could be. Your child won’t receive tax relief on pension contributions that exceed their Annual Allowance, for instance, so it may be beneficial to save additional funds elsewhere.
You’re also limited by the £9,000 JISA allowance.
We can work with you to review your goals and determine the most suitable ways to save for your child or grandchild’s future. Additionally, we can assess your financial position and ensure you only set aside what you can realistically afford without disrupting your own plans.
Get in touch
If you want to give your child or grandchild a head start on their financial planning journey, we can guide you.
Please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.