I met a personal finance expert last week who asked me if I had yet set up a stakeholder pension for my small child. I haven’t. I know that in theory it’s a good idea. Put the annual allowable amount of £3,600 gross into a pension every year for ten years for a child who is two now and it’s hard to see how they can’t have a happy retirement.
So why aren’t I doing it for mine? Simple. She won’t be hitting retirement age for many decades to come and I just don’t trust the Goverment not to change the rules between now and then.
Why shouldn’t a hard-up chancellor struggling with the legacy of Gordon Brown’s overblown public spending policy suddenly decide that the under-21s can’t have pensions and claw back any gains? Who’s to say that the annuity system under which any tax gains we may have made on pensions are ripped from us by the financial services companies won’t get more, not less, restrictive? And given the paucity of fund choice when it comes to stakeholders, how can I know that in the end getting her one will be any better for her than simply drip-feeding money into a soft commodities-based ETF?
I also wonder whether this passion for investing for our children via various Government-sponsored schemes (and in this I include child trust funds) really makes sense. My own pension is far from full enough (recent estimates from my Self Invested Personal Pension provider tell me I’m currently on track to get a pension of just under £3,000 a year), so surely I’m better filling that up than anything else?
The way I see it, the best way to secure your children’s future is first to secure your own. Most people of new parenting age are in debt (the average non-mortgage debt of the under-30s is around £7,000) and have as pathetic a pension as I do. To start squirreling money away in stakeholder pensions and child trust funds before you sort this is surely to get your priorities wrong. Will your children thank you for signing them up for a pension before they’re out of nappies if the end result is that they have to spend their 30s figuring out a way to pay your nursing home fees, because you never got round to sorting out your own savings?
I doubt it. There’ll be no toddler stakeholders in my house. Savings are going to be all about the adults – at least until we own houses outright and have full pensions and ISAs. That way, not only will our children never have to support us, but if they’re lucky (and one of Gordon’s successors is in a good mood), they may even inherit a bit too.
Click here to sign up for Merryn’s free weekly personal finance email, MoneySense.