Skandia, the operator of an investment platform, has claimed that a grandparent putting aside £240 a month for eighteen years is able to leave their child almost £1million.
With pensions being one of the biggest targets for those in the government keen to make savings, it seems likely that anybody who is not close to approaching retirement will face a far bleaker pensions future than those already retired or who will do so soon. Children born today face an incredibly uncertain future, which is why this data has been published.
By paying £240 a month into a pension set up for the grandchild, which will mean £2,880 a year, and benefitting from the £720 in tax relief that this will get, the pension will end up with £3,600 a year for the eighteen years the grandparents pay in.
The earliest the child can draw on this money is 55, but if they leave it until they’re 60 it will reach £989,994 in value if the pension pays out 6.5% interest.
However, this idea has been roundly criticised. Firstly, many people believe that a 6.5% rate of interest is very unlikely, especially for the entire term of the pension. Secondly, because the method relies on waiting until sixty years from now, assuming you begin doing this today, there is no way to guarantee the pension fund will be all that useful by then. It may collapse or become redundant due to future developments. Thirdly, although the amount seems impressive to us, inflation will likely mean that £989,994 is not as grand a figure as it seems now.
Overall, it’s a nice idea and shows that it’s worth looking at the best way to save money for your children or grandchildren, but as an actual investment it is entirely unfeasible.