Saving for your children or grandchildren's future? Here are 3 smart strategies

Saving and investing for your child or grandchild’s future is likely a key element of your overall financial plan, and choosing the right strategy could significantly enhance the growth of the funds you build for them.

By making regular contributions to your savings and investments, you can take advantage of compound growth over time, helping to build a substantial fund for their future needs.

Whether you’re saving for their educational expenses, first home, or even their pension, consistent contributions from an early age can help ensure your child’s long-term financial stability.

It’s important to know which options best suit you and your child or grandchild. By tailoring your strategy to fit both the timing and purpose of these savings, you can make the most of the funds you’re putting away for their future.

Read on to discover three smart strategies for saving for your child or grandchild’s future.

1. Start their retirement fund early by opening a junior pension

You might think that starting a pension for a child should be less of a priority than other immediate financial needs, such as saving for their education, extracurricular activities, or first home.

However, investing in a junior pension can make a significant difference to their retirement fund when they come to access it.

A junior pension is designed as a long-term investment, with funds locked in until your child or grandchild reaches the minimum pension age (currently 55, rising to 57 by 2028). This gives the pension substantial time to grow and allows interest and returns to compound over decades.

You can open a pension for your child or grandchild from the day they’re born, and any contributions you make benefit from basic-rate tax relief.

For every £1 you contribute, the government adds 25p. You can contribute up to £2,880 each tax year, with an additional £720 provided in tax relief, bringing the total to £3,600 (assuming the child has no relevant earnings).

Let’s look at an example to show the power of compounding and regular contributions.

If you contribute the maximum of £2,880 a year from your child or grandchild’s birth until they are 18, and they continue to contribute the same amount from 18 until 55, their pension could potentially grow to £1,080,048 (assuming an average growth rate of 5% per year).

By setting up a pension for a child, you’re not only building a financial cushion for their future but also instilling a foundation of financial security that could alleviate some of their future worries.

2. Save for their future security in a Junior ISA

Junior ISAs (JISAs) offer a tax-efficient way to save for your child or grandchild’s future, helping to build a fund they can access when they turn 18.

While only a parent or legal guardian can open a Junior ISA for a child under 16, anyone can contribute to it, up to the annual limit of £9,000 (for the 2024/25 tax year). Any interest earned on the savings is entirely tax-free.

There are two types of Junior ISAs available:

· Cash JISA – A cash savings account that offers tax-free interest at a set rate.

· Stocks and Shares JISA – An account through which you can invest in stocks and shares, with any gains being tax-free, though there is also the potential to make losses.

If you maximise contributions at £9,000 annually (or £750 a month) for 18 years, you would have contributed a total of £162,000.

Assuming an average annual growth rate of 5%, these contributions could grow by an additional £66,919, bringing the account’s total to approximately £228,919 by the time your child or grandchild reaches 18.

The money you save could be used to help them through university, buy their first property, or act as a financial cushion to support them as they get started in life.

3. Establish a trust on their behalf

Trusts allow you to set aside money or assets for your child or grandchild while giving you some control over when and how they access the funds.

There are several different types of trusts you can establish on behalf of your children or grandchildren, including:

• Bare trusts

• Interest in possession trusts

• Accumulation trusts

• Discretionary trusts.

The type of trust you choose to establish might depend on how you plan for the money to be spent. Unlike pension contributions and JISAs, there is no limit to the amount you can save within trusts.

Trusts offer different levels of access, flexibility, and tax benefits, making it wise to consult with a financial planner to determine the best option for you and your child or grandchild.

A financial planner can help you to save and invest for your child or grandchild’s future

Whether you’re saving for education, a home, or simply building a nest egg, a financial planner can offer expert guidance on the best investment options to suit your child's or grandchild’s needs.

They can help you navigate the various tax-efficient options available, ensuring you optimise the growth of the funds you set aside.

A financial planner can also assist with reviewing your strategy if and when circumstances change, ensuring that the approach remains aligned with your family’s needs.

This ongoing support can provide peace of mind, knowing you have a comprehensive plan in place to secure the future financial well-being of your child or grandchild.

To speak to a financial planner, get in touch.

Email info@mlpwealth.co.uk or call us on 020 8296 1799.

Please note

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

This article is for information only. 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.

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 value of your investment 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.