By David Porter, Financial Planning Consultant, Armstrong Watson LLP

FOR those parents who have spare funds, putting money into their children’s pension will boost the retirement prospects of their offspring.

Under current rules, there is also nothing to stop a parent contributing to the pension of an adult child. With millions of younger workers having been newly enrolled into a workplace pension, many now have a pension for the first time, but many are only making very modest contributions.

A further boost by way of additional contributions can prove very beneficial and is money that cannot be touched until later in life.

In 2019 pension provider Royal London launched a campaign to make parents aware of the ‘hidden advantages’ of paying into the pension pot of their adult children. It is a little known fact that a parent who puts money into their child’s pension could be doing them a favour three times over.

Firstly, the recipient will get a boost to their retirement pot, including tax relief at the basic rate. Secondly, recipients who are higher rate taxpayers can claim higher rate tax relief on their parents’ contributions, which will thereby increase their disposable income. And thirdly, recipients affected by the high income child benefit charge can see this penalty reduced because of their parents’ generosity.

Of course, not every parent has spare cash to pay into their children’s pensions, of course, but many may be in a better financial position than their children as clearly they are at a different stage of life. By paying into their children’s pension, they can therefore give them a triple boost and improve their long-term financial security.

Apart from generally wanting to help their children, parents may also be interested in this idea particularly because they may be up against their own annual limits for pension contributions and may therefore have spare cash. Contributions may also reduce future inheritance tax bills if they qualify for one of the standard exemptions, such as regular gifts made from regular income.

The amount that the parent can contribute with the benefit of pension tax relief is not limited by the parent’s pension tax relief limit but by the limit of their children based on their circumstances – which in many cases will be up to their annual salary or £40,000, whichever is the lower.

If you are a parent or guardian and would like some advice on saving and investment options for your children or grandchildren, please contact David Porter on 01756 620049 or email