Cheers, Nan: how grandparents can make their grandchild a millionaire with just £240 a month
With the newly enforced £9,000 tuition fees and the soaring cost of living, the younger generation are likely to find the prospect of saving for their retirement nothing more than a pipedream.
Make moneyMeanwhile, those who are already in retirement are acquainted only too well with the pensions crisis and wish they’d saved that little bit more to see them through – which is why it seems only logical that grandparents with a bit of spare cash should invest it in a pension for their grandchild.
Research by investment platform operator Skandia revealed that if grandparents put £240 a month into a pension for their grandchild, the grandchild could be a millionaire by the time they’re 60.
But how exactly does this work? By putting in £240 a month, a total of £2,880 a year would go into the pension. This would reel in £720 per annum in tax relief, which would drive the total sum up to £3,600.
If this system were to be sustained for 18 years, the grandchild’s pension would contain £51,840 from their grandparents – but based on a 6.5% investment growth per year, the value of the pension could reach a staggering £989,994 by the time they are 60 years of age.
Adrian Walker, Skandia’s pension expert, said:
“If a grandparent has surplus pension income then this can be a wasted opportunity from an estate and tax planning perspective. By opening a pension for their grandchild, they can significantly improve the amount their grandchild eventually inherits.”
Opening a retirement fund early is increasingly important nowadays, with children born today unlikely to have the same amount of retirement income funding that the current level of baby boomers are enjoying. In addition, state support will probably fall and final salary pension schemes are likely to vanish.
However, for those in retirement and no longer earning, contributing £240 a month to your grandchild’s pension may prove impossible – and besides, there may be more than one grandchild involved!
An alternative way to secure financial security for your grandchildren in the future is to share your knowledge rather than your money – and teach them how to budget. A prepaid card can be extremely helpful as it will prevent overspending and teach children how to manage their money more effectively; equipping them with skills which can be used throughout their life.