by Simon Wright

Created on: April 30, 2010

The arrival of a baby is always a great cause of celebration for parents and it’s only natural that mum and dad will want to do everything in their power to look after the needs of their child. As well as providing for the physical and emotional needs of their newborn, parents often also start to give consideration to how they can provide for their child’s future financial needs.

Traditionally, this financial support has been accomplished through opening children’s savings accounts. In the UK, parents also have the option of opening a Child Trust Fund (CTF) which is a scheme that is backed by additional government funding and which offers tax-free returns and can include exposure to the stock market for potentially higher returns.

Such schemes can be very effective at delivering a pot of money that your child can then use to finance college or the deposit on their first house. However, another option which is open to parents in the UK (and may be available in some other jurisdictions) is to open a pension for their child.

Stakeholder Pensions:

The UK government introduced Stakeholder Pensions in 2001, as a means of tackling increased concerns over how people are going to provide for a comfortable retirement. Although most stakeholder pensions are opened by adults in full-time or part-time employment, they are available to everyone and that means that it is possible for parents to open a stakeholder pension in their child’s name and contribute towards it.

The trick to making pensions work is always to start as early as possible, so having a pension that starts from the child’s birth is about as good as it gets! However, it’s important to realise that the pension funds can’t be accessed by your child until they turn 55. Therefore, opening a children’s pension is usually best used in combination with building up a savings fund that they can access when they’re quite a bit younger!

Why is a pension a valid option:

According to www.babyandpregnancy.co.uk , if you were to make an initial lump sum payment of 600 pounds into the stakeholder pension and then used your monthly child benefit of about 75 pounds to fund it, this would result in a fund of 618,000 pounds by the time your child is 20. In turn, this can lead to an annuity yearly income of around 39,000 pounds.

Another financial website, www.myeggnest.com, highlights that the reason why children’s pensions have so much potential. They state that if

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