Saving in a pension for grandchildren

Annie Shaw / 20 May 2016

Annie Shaw answers a reader's question about saving money for grandchildren in a pension.


I would like to set aside some money for my granddaughter’s future, and I believe I can contribute to a pension for her even though she is still at school. 

Would this be a good idea? She doesn’t plan to go to university, so doesn’t need help with student fees.

What tax will I have to pay if I give money to my children?


Workers normally receive income tax relief on pension contributions made from their wages. But you don’t need to be a worker. 

You can save up to £2,880 a year in a pension without having any earnings. You can even be a child. 

The Government will top up the amount going into the fund by 25% to as much as £3,600, as if tax relief were applied.

What are the rules on gifting property to children?

Are there any drawbacks to saving into a pension?

Opening a pension scheme for a young person will serve them well long term, but the big drawback is that the rules say they can’t access the money until they are well into late middle age – at present aged 55, rising to 57 in 2028 and set to rise still further.

As an alternative, you might like to consider the new Lifetime ISA (LISA), which is being introduced next year, for your grandchild. 

The LISA is a tax-free scheme to help people between the ages of 18 and 40 to save for retirement, and gives a 25% bonus for long-term saving if no money is withdrawn before the age of 60, or the cash is used for a house purchase. 

Withdrawals can be made in other circumstances, although with loss of bonus and investment returns, and this makes the LISA more flexible than a pension, and particularly attractive for savers who have no employer whose contributions could top up a pension. 

Annie Shaw writes a column in Saga Magazine. Subscribe here. 

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.