It's time to plan your child's retirement

If you find yourself burying your head in the sand at the mere mention of pension saving, then planning for your chil-dren's retirement won't have crossed your mind.

But with final salary company schemes closing (see page 18) and workers failing to save enough, any parent prepared to start planning ahead on their children's behalf can reap huge rewards.

An easy way to save is via a stakeholder pension, where you can contribute up to [pound]2,808 and benefit from basic-rate tax relief to take it to [pound]3,600; for every [pound]78 you contribute, the Government adds [pound]22.

Justin Modray of independent financial adviser (IFA) Bestinvest says that the "compound" effect on your child's pension pot over such a long period can be "staggering".

He takes the example of parents investing [pound]50 a month in a pension with 7 per cent annual growth after charges. "If invested from birth, the fund would be worth [pound]688,000 at age 65," he says. "If monthly contributions started at 18 instead, the pension would be worth [pound]212,000 at 65."

Alternatively, he points out that a one-off [pound]3,600 contribution made at birth, with 7 per cent annual growth after charges, would be worth [pound]292,500 at 65 - against [pound]92,500 if the contribution were made at 18.

"The earlier you start, the better," says Anna Bowes of IFA AWD Chase de Vere. "Stakeholder pensions will allow investment from as low as [pound]20 per month."

Another of the benefits of stakeholders is that you can stop and start contributions without penalty. Charges are capped at 1.5 per cent a year, falling to 1 per cent after 10 years.

When it comes to providers, Mr Modray recommends choosing one with a good range of managed funds, such as Scottish Widows or Legal & General.

The pension will be under the control of the parents, passing to the child at 18. The money cannot be accessed until the age of 55.

For those parents who want their children to be able to get their hands on the money earlier, there are plenty of other options, says Ms Bowes. You could, for example, top up their child trust fund with annual contributions of up to [pound]1,200; the investment is tax- free.

'We're trying to start the savings habit'

Paula and Antony Oates from Walsham, Norfolk, are investing in stakeholder pensions for their two children, Joseph, seven, and Jasmine, four.

They took out the fund via Norwich and Peterborough Financial Advice Service - the building society's independent advice arm.

"My mother decided she wanted to give money to the grandchildren," says Paula, 39. "One of N&P's financial planners suggested we take out two separate stakeholders."

The couple want to ensure their kids have something in place when they reach retirement age.

"We hope that by starting the savings habit now, we will encourage them to continue paying in as they get older."

Further to this, the couple have invested a lump sum in stocks and shares for their children to access when they're in their late teens.

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