Children’s pensions should not be seen nor heard

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Google Children’s Pensions and you’ll get a consistent result with Virgin Money at the top. Now before I go any further let me state for the record I love the Virgin brand, I love Virgin Trains and Virgin Atlantic and have sincere respect for Virgin Money. I recall that they were one of the early adopters of passive versus active fund management and played a great role in calling into question the value added by so-called active fund managers.

Which is why I can’t see the logic in them tarnishing their brand with the flawed concept of children’s pensions.

I can see why they’ve gone for it. It’s almost virgin territory (see what I did there) so it gives them a place in the market. It’s also an interesting concept to play with from a PR point of view; using tax relief and the magic of compound interest over 60 years. it’s possible to show how “easy” it is to set up a child as a pension millionaire.

Yes it’s flawed and how much will a million quid be worth in 60 years time? Indeed how much of a pension will a million quid buy you in 60 years time? But hey who is counting, it gets you cheap headlines and there is nothing better on a slow news day.

But that’s the point, with children’s pensions it’s cheap but in my view it’s also nasty. A popular consumer brand should not spend its time trying to pretend that this is anything other than a highly niche product.

Why in God’s name would anyone invest for a child in a pension pot when there are far better alternatives.

Firstly pension benefits are going to be locked away for up to 55 years (on current legislation). Who knows what the legislative landscape will look like by 2067! That million quid in pension benefits may all be means tested away meaning that all that hard invested money has gone to waste. Indeed you may not make it that far, who is to say that pensions may be subject to a tax raid by the government, it’s happened before. So would you trust the government with your kids money for nearly two life sentences?!

Secondly even if you are fixated with the concept of getting a pension set up for your kids the ISA first strategy screams at you to invest their money in a JISA. You can then switch that money to a Pension when the child is a higher rate taxpayer, or at least leave things until the last minute (before the “child’s” retirement) before switching to a pension – at least then they’ll be able to do so in the light of the legislative landscape at the time and work out whether it is worth switching to a pension.

Even if the JISA route has been exhausted, and at a £3,600 a year limit we are talking about wealthy individuals now, there are simple enough trust routes that can be used to incubate investments for children allowing them to be switched to a pension in later life if the ISA first strategy so dictates.

Children’s pensions are an exceptionally niche product. If Virgin are going to advertise them it should be in the same places that they advertise Virgin upper class flights. Come on, you are starting a new relationship with money, why not show it by turning your back on a cheap bit of PR and a dreadful product.

No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting Advisers may charge for providing such advice and should confirm any cost beforehand.