Planning ahead and starting early can really help when it comes to building up wealth for children.
Current pension rules, which could change in the future, allow a parent to put up to £2,880 a year into a pension for a child. Tax relief means that this is then topped up to £3,600. If a parent starts this once a child is born, the contributions would cost about £52,000 over 18 years, and this, under current rules would be topped up by around £13,000 in tax relief.
Assuming growth in investments over the period, when the child reaches age 55 currently, they could have a sizable pension pot, the spending power of which will of course depend on the passage of inflation over the intervening years.
Maximising the Junior ISA allowance could also produce a valuable nest egg. You can save up to £4,368 on behalf of a child in the 2019-20 tax year.
If you’re unable to afford the full subscription each tax year, small regular sums build up over time, so don’t be dissuaded.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.