Children’s pension or Junior ISA?

Many people are unaware that it is possible for a child to have a pension. Parents can open a pension scheme for their child from the day of birth and can control the investment until the child turns 18.

There are a few differences between investing for a child in a pension vs. using a Junior ISA, so let’s take a look now.

Children’s pension

Pensions are a long-term investment and the earlier you start saving, the more potential your investment has to grow and benefit from the compounding effect of any returns. Even relatively small amounts, if saved regularly, can make a big difference to equity funds on retirement.

At the time of writing, the annual savings limit for children is £3,600 gross (i.e. after tax relief – or £2,880 net contributions).  After a parent or legal guardian has set up the pension, anyone can pay into the pension, subject to the annual maximum limit.

One option to consider when saving for younger people is higher risk investment funds. The potential returns are higher and the fund also has longer to recover if the return is lower, but of course there is more financial risk involved.

And given pension investments grow free of Income Tax and Capital Gains Tax, they can be a really powerful tool to help your child prepare for their future.

Junior ISA (JISA)

A Junior ISA may be a better option if your child wants more flexibility over when they can access the funds, especially with the rising costs of university fees and prices of housing.

The annual allowance for 2024/25 is £9,000 and can be invested in a cash JISA or a stocks and shares JISA.

As ISAs grow free of Income Tax and Capital Gains Tax, they are a highly tax-efficient way to save for the future.

You can get more help with the different options, so please do get in touch if you have any further questions.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value may fall as well as rise.  You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Please note that St. James's Place does not offer Cash Junior ISAs.