Will the pensions I set up for my children be protected?

Lisa Vaughan
25 January 2017

Q

I would like to open stakeholder pensions for my two children aged nine and 18 months. The pensions would be with the provider that I already hold funds with, as the pensions would be in my name until my children turned 18.

If the pension provider got into financial difficulty, would all the funds count as being mine or would the children’s be separate? I want to make sure the money would be safe in a time of crisis.

From
MB/Donington

A

Saving into pensions for your children is a fantastic way to build up funds for their future.

Your children will eventually have the choice to access their pension benefi ts as a retirement income or via cash lump sum withdrawals in later adult life. You would be investing for your children’s long-term future.

A pension would be established in each child’s name and you would be responsible for the arrangement until they reached age 18, at which point they would take over. You can usually invest up to £3,600 gross per child in a tax year and receive 20% tax relief (up to £720) from the government, which would only cost you £2,880. Of course, the government can change pension and tax rules at any time.

The Financial Services Compensation Scheme (FSCS) can pay compensation to consumers if a financial services firm ceases trading or is unable, or likely to be unable, to meet its obligations to customers.

 

The FSCS has limits; these apply separately for each person for each authorised firm.Your children will be eligible as individuals, separately to you. If you set up a personal pension or stakeholder pension with an insurance company, the FSCS will cover 100% of the money in the pension should the insurer go bust. Self-invested personal pensions (Sipps) are considered a ‘wrapper’ for other investments, so the rules around compensation are more complicated. If a Sipp provider fails, the compensation limit is usually £50,000.

 

Moneywise says: The rules on pension protection are being consulted on as we go to press, and the regulator has proposed extending the protection limits.