In effect, a children's stakeholder pension is no different than anyone else's pension. Anyone can choose to pay into the pension fund - provided, of course, that the parents are aware - and the pension fund is invested in exactly the same way.



How does a children's pension scheme work?

You can pay in up to £3600 a year into a child's personal pension (£2880 plus the basic rate tax relief at 20%) and because it's free from income tax and capital gains tax the fund will grow even faster (although the 'child' will have to pay tax when they access the pension on retirement).

If you start a children's pension plan when they are born, the fund will have had 16-18 years of contributions and potential growth by the time your child starts to pay into it themselves - giving them a massive head start.

If you paid in the maximum amount each year, it would be like starting a pension scheme at 18 with a six-figure lump sum contribution.

So how does that affect the value of a pension scheme at the time of retirement?

Well, the longer you save for retirement, the better the returns from your pension fund are likely to be.

Even a children's pension scheme on which contributions stopped at age 18 could be worth in excess of £1.3 million pounds by the time the child is 60 (based on 7% growth a year). When you compare that to a scheme started at 18, the figure is around half as much despite requiring 42 years of contributions.

How can you start a children's pension scheme?

Speak to your financial adviser. When dealing with growth over such an extended period even the smallest differences in the rate of growth of the pension fund could have a dramatic affect on the value of the pension on retirement.

After you have chosen a pension plan, you can make one off or regular contributions - subject to the required minimums.

The next step is simply to keep an eye on the progress of the pension fund and speak with your independent financial adviser regularly to ensure you're getting the most from your money - and that your child is too.