Can I set up a pension for my child?

Stakeholder pensions can be set up for children by parents and/or relatives.  The maximum amount that you can invest is £2,808 per year into this scheme, the government will top this up to £3,600 with basic rate tax relief.

The pension cannot, however, be set up in the name of the child. It has to be under the name of the parent / guardian. This is a long-term investment, and funds can't be touched by the child until they reach the age of 55.

There is no income or capital gains tax to pay. Also as it is a stakeholder pension, contributions can be stopped and started at will. Regular monthly amounts can be as low as £15.60.

It certainly is a great idea to start a child early on a pension scheme. Assuming the minimum is paid every month by the relative, and the child continues to pay £15.60 in each month from 18 to 60, the pot will be eventually worth around £120,000.