Financial Planning for Step Children 4 - Pension and Investments
Published / Last Updated on 20/01/2022
Our final video in the Step Children series looks at other opportunities for pensions, saving and investing for step children outside of Junior ISAs.
1. Pensions for Step Children
Every person in the UK can have a pension scheme including children from the day they are born.
Children usually do not have an income so the maximum that can be paid into a pension for them each year is £3,600 gross. That is £2,808 net of tax relief. In simple terms for every £80 you invest, tax relief of 20% i.e. £20 will be added to make the contribution up to £100 gross. Pensions funds must be opened by parents of legal guardians.
Third parties are then allowed to invest in the pension including parents, gran parents, other relatives, non-relatives, friends and other third parties including employers and of course, step-parents.
3. National Savings & Investments
Bloodline Involvement: As with other companies, Junior ISAs must be opened by parents/guardians and investment accounts can be opened by parents/guardians, grandparents and great grandparents only. Third parties including step parents can invest but investment decisions can only be made by the nominated contact.
Non-Bloodline: Other investments that are available to step children with NS&I and do not specify that it must be that parents/guardians, grandparents and great grandparents only can open them are:
- Premiums Bonds, Green Bonds, Direct Saver Account, Income Bonds.
- In addition, when the child is at least 16 years old: Fixed Rate and Index Linked Certificates, Guaranteed Growth and Guaranteed Income Bonds.
3. Insurance Investment Bonds
All adults, usually below aged 80-85, can open and insurance investment bond. Clearly this includes a step-parent. The unique feature of an insurance investment bond is that ownership can be assigned to be owned by another adult. For example: A step-parent opens a bond. They then hold the bond until they are ready to give to step-children. This is done by assigning ownership of the bond to the step-child say at age 18 or going to university, getting married, buying a car etc. The step child can then cash the bond in and they are deemed to have owned the bond from day one and therefore taxable. If the step-child is at university or early career stages and a non-earner/non-tax payer or is working and a basic rate tax payer, no taxes are likely to be payable.
