Child trust fund

[Lewis]

No - that is £185k in TODAYS money - check out the pension calculators.

The real amount on a £3600 investment in 65 years time will be something like £900k.

Well unfortunately these figures aren't right. After reading this post I have started the process of a pension for our 1 year old. We are going to pay £234 per month which after tax relief becomes £3600 per year which is the most you can pay. We are only planning on doing it for 1 year.

£3600 at 6% compound interest (medium return is 7% minus 1% comission) over 65 years is £158,921. That is more like £40K in today's money (dividing by 4 which is roughly what they have done on the pension forecast) which is a pension of around £1K per year in today's money at retirement (again based on the pension forecast figures).

A far cry from the figures mentioned above. If you continue to pay £3600 every year until retirement then the figures are more like the post above!

That said, it is a good idea and we are going to go ahead anyway. I would be happily corrected if you think these calculations are wrong.

[ChimpMaster]

No - that is £185k in TODAYS money - check out the pension calculators.

The real amount on a £3600 investment in 65 years time will be something like £900k.

Sounds interesting - how does it work, i.e. what are the assumptions based on.

The reason I thought otherwise is that I took 3k and just applied compound interested to it over 65 years, hence why I thought it wasn't that much.

[TheFaQQer]

Agreed - I guess how much you lump into a CTF depends how much you're prepared to risk "losing" through your childs spending.

If you invest £1200/year for 18 years then your child will have a pot worth £30k ish in todays money.

Interestingly, if you invest just £2808 (net of tax) into a stakeholder pension for your child in the first year of their life they will have a pot worth £185k ish in todays money when they reach 65.

In 65 years time 185k will not have much buying power. Imagine taking 10k back to 1940 - it would be worth a heck of a lot back then... but now it's diddly tulipe.

That's why the key words in moorfield's post are in today's money.

[moorfield]

In 65 years time 185k will not have much buying power. Imagine taking 10k back to 1940 - it would be worth a heck of a lot back then... but now it's diddly tulipe.

No - that is £185k in TODAYS money - check out the pension calculators.

The real amount on a £3600 investment in 65 years time will be something like £900k.

[ChimpMaster]

Interestingly, if you invest just £2808 (net of tax) into a stakeholder pension for your child in the first year of their life they will have a pot worth £185k ish in todays money when they reach 65.

In 65 years time 185k will not have much buying power. Imagine taking 10k back to 1940 - it would be worth a heck of a lot back then... but now it's diddly tulipe.

[moorfield]

I think it's good to give them the responsibility

Agreed - I guess how much you lump into a CTF depends how much you're prepared to risk "losing" through your childs spending.

If you invest £1200/year for 18 years then your child will have a pot worth £30k ish in todays money.

Interestingly, if you invest just £2808 (net of tax) into a stakeholder pension for your child in the first year of their life they will have a pot worth £185k ish in todays money when they reach 65.

[ChimpMaster]

What's so good about a CTF anyway? You put your after-tax money into it and there's a limit of £1200. Interest rates on them are crap anyway.

The only bonus I see is that the scumvernment put in a whopping £250.

[Fran]

One problem with CTFs I think is that when your child hits 18 control of the money passes to them. Now what do you think an 18 year old is going to do with a large lump of cash ? - yes most likely p1ss it all away (and who can blame them). That's why I'm not using CTFs. I'd rather put money aside elsewhere (eg ISA) so I can give it to them when they need to do something constructive with it - like buy a house.

But then there will be tax to pay, depending on how much money you are giving. If it's over a certain threshold (£7k ish per year, I think), then they pay tax on it.

Of course, you could teach them some degree of fiscal responsibility and control, and then trust them to do what they will with the money.

Me and my missus often have exactly this sort of "discussion". I think it's good to give them the responsibility, by that age they need to be sensible with money or God help them with all the credit around these days!

[TheFaQQer]

One problem with CTFs I think is that when your child hits 18 control of the money passes to them. Now what do you think an 18 year old is going to do with a large lump of cash ? - yes most likely p1ss it all away (and who can blame them). That's why I'm not using CTFs. I'd rather put money aside elsewhere (eg ISA) so I can give it to them when they need to do something constructive with it - like buy a house.

But then there will be tax to pay, depending on how much money you are giving. If it's over a certain threshold (£7k ish per year, I think), then they pay tax on it.

Of course, you could teach them some degree of fiscal responsibility and control, and then trust them to do what they will with the money.

[moorfield]

One problem with CTFs I think is that when your child hits 18 control of the money passes to them. Now what do you think an 18 year old is going to do with a large lump of cash ? - yes most likely p1ss it all away (and who can blame them). That's why I'm not using CTFs. I'd rather put money aside elsewhere (eg ISA) so I can give it to them when they need to do something constructive with it - like buy a house.

[TheFaQQer]

Annual limit of £1200/year per family member, not sure its worth it.

Just to clarify - that's per child that you can put in (in case people thought that any family member can put £1200 into the account).

[FiveTimes]

Any ideas, would it be legal to pay money into a child trust fund account from a Ltd. company, gross (i.e. no CT payable)

CTF accounts are tax-free, but you have to pay up to 40% tax on the money getting it out, if you first pay it to yourself as a dividend.

Just a thought....

Annual limit of £1200/year per family member, not sure its worth it.

[moorfield]

However, if you have kids (sounds like you do if you were asking this question) at pre-school / nursery / childminder you can pay yourself childcare vouchers tax free ....

[TheFaQQer]

Any ideas, would it be legal to pay money into a child trust fund account from a Ltd. company, gross (i.e. no CT payable)

CTF accounts are tax-free, but you have to pay up to 40% tax on the money getting it out, if you first pay it to yourself as a dividend.

Just a thought....

It would be a BIK if you took it out - CTF should only accept payments from people rather than companies.

So, the company could do it, but you'd pay tax on it, so not worth it.

[dude69]

Any ideas, would it be legal to pay money into a child trust fund account from a Ltd. company, gross (i.e. no CT payable)

CTF accounts are tax-free, but you have to pay up to 40% tax on the money getting it out, if you first pay it to yourself as a dividend.

Just a thought....