Pensions - a good alternative to CTFs

Following the coalition Government's decision to stop Child Trust Fund accounts being opened from January 2011, Shelagh Hamer, pension specialist at NFU Mutual, explains why pensions could be a good alternative for investing in a child's future.

"CTFs are a great tax-free way to encourage parents to save for their child's future, but many forget they can also set up a Children's Stakeholder Pension to help save towards their retirement.

"Anyone who has a vested interest in a child's future can set one up and start contributing straight away. Many schemes require a minimum investment of £20 a month, but with the NFU Mutual Stakeholder you can invest as little or as much as you want up to a maximum of £3,600 a year gross; that's £2,400 more than the CTF Scheme allows.

"The government will also contribute £20 for every £80 contribution made, so a £200 investment will actually only cost £160.

"This tax relief on contributions could help your child's investment pot to grow more rapidly. Plus, pension funds are free from Capital Gains Tax, and regular premiums paid from normal income are usually immediately outside of an estate for inheritance tax purposes.

"As with all pension products the child will not be able to access the fund until they are 55. However, some parents feel the age of 18 is too early for children to access hard earned savings put aside using a CTF.

"Investing via a pension allows you to build up a significant investment pot during your child's lifetime. This means they can divert their funds elsewhere i.e. buying a car, or paying for a wedding, without worrying about immediately starting a pension.

"Plus, long-term investors, like those contributing to a pension, traditionally have a much better chance of riding out market volatility and capitalising on the periods when the stock market is rising."