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While some may scoff at the idea of a pensions crisis in the UK, this is something that poses a very real threat in the current climate.
Not only does the UK have the largest pensions deficit across the whole of the EU, for example, but one-in-five citizens aged between 50 and 60 are currently unable to put anything away for their impending retirement.
This also prevents individuals from saving on behalf of their children, creating potential issues for the next generation. In this respect, grandparents may be the best individuals to invest on behalf of kids, and there are a number of facts and statistics to support this.
According to financial planning brand Tilney, parents may not be the best placed to invest on behalf of a child. In fact, they say that there are numerous instances in which grandparents make for better investors, particularly from the perspective of tax-efficiency.
The main reason for this is that no amount of interest earned on savings or dividends will be subject to tax, optimising the amount received by recipients.
In contrast, only the first £100 of accrued interest on money contributed by a parent is tax-free, and this makes a significant and potentially decisive difference.
This year may be a seminal one for consumer demographics in the UK, as it sees the youngest members of the influential Millennial group turn 18. As a result, we may see Millennials begin to overhaul the so-called “grey pound” as the biggest spend demographic in Britain.
Still, the grey pound (including citizens aged 65 and above) shouldn’t be underestimated. This group continues to deliver a higher total spend than Millennials, including a staggering £6.7 billion on clothing alone. In theory, this group is also the most affluent in the UK, particularly as the ensuing pensions crisis is only a recent phenomenon.
With grandparents making up a key part of this demographic, they are clearly well-placed to invest on behalf of children while parents focus on supporting them in the here and now.
Historically, it was thought that grandparents were quite restricted in terms of how they saved on behalf of children. This is no longer the case, however, with grandparents now able to open a number of accounts and contribute heavily to others.
Grandparents can easily open a basic children’s savings account, for example, so long as this is registered in the kid’s name and documentation (including the beneficiaries’ birth certificate) is presented.
While grandparents cannot officially open a Junior ISA, they can register as the primary contributors and invest up to £9,000 each tax year from 6th April 2020. Over 18 years, this adds up to a tax-free lump sum for your grandchild at £162,000 – and that’s before any interest is applied! A standard interest rate of 3% means your grandchild would get around £215,000 on their 18th birthday.
There should be no obstacles for a grandparent who wants to open a children’s savings account for their grandchild, as long as they open the account in the child’s name and have documentation, such as the child’s birth certificate. As long as a child earns less than the personal allowance, currently £12,500, a grandparent can fill out an R85 form to ensure any interest is paid without tax being deducted automatically.