Children in the UK are missing out on this annual sum from the Government because their parents or guardians have not taken out a pension for them. Experts are encouraging parents to start contributing to a pension pot in order to claim this tax relief. The £720 in basic rate tax relief can be put towards a young person aged under 18’s pension if the person looking after them takes out a junior pension.
Currently, parents or guardians can put up to £2,880 a year into a junior pension, and the child will receive basic rate tax relief of 20 percent in additional contributions from the Government.
As a result, children with a pension could be awarded £3,600 each year which is an extra £720 a year annually in free cash.
When a guardian of someone aged under 18 makes the decision to take out this plan, the money will be fully controlled by them.
However, once the child turns 18 years of age the ownership of the pension pot will be transferred to the child.
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No tax needs to be paid on the investments within a junior pension plan so long as it does not break the Annual Allowance and Lifetime Allowance rules.
Due to this, junior pensions are a worthwhile money-making tool for families and considered a long-term investment.
Parents can also take out a green pension if they want to invest in their child’s future as well as that of the planet.
Despite this, experts are concerned the rise in living costs is discouraging people from taking out these pension pots for their children.
The UK is in the midst of a cost of living crisis which is being caused by soaring inflation rates and sky-high energy prices.
With this being a factor, many people are avoiding saving money in lieu of paying off rising utility bills and inflation-hiked prices.
Rowan Harding, a financial planner with Path Financial, broke down why she thinks it’s important parents take advantage of this tax relief.
She explained: “The cost-of-living is putting a restraint on household budgets and some may see preparing for their child’s retirement as a luxury.
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“But, if you can afford to continue paying, it could prove crucial further down the line.
“Don’t forget that you don’t need to actually put in the full amount of £2,880 a year to receive a contribution.
“The Government will give you basic rate tax relief of 20 percent in additional contributions on however much you put in.
The money expert noted that even those who cannot afford to save the full amount in the junior pension could still be in receipt of a significant amount.
Ms Harding added: “So, if you can, you should still consider putting it into your kid’s pension pot.
“For example, if you put in £1,000 a year, net, the child will receive £250 in additional contributions from the Government.
“The maximum of £720 from the government basic rate tax relief stands for those who make the maximum allowable contribution of £2,880 in any one tax year.
“Many people don’t realise what their child could be getting, so it’s important we get the message out that parents and guardians could boost their kid’s retirement pot by thousands of pounds before they hit 18.”