He was talking about the different savings options that families can use to increase savings for children such as Junior ISAs. He warned that starting a child’s pension is not for everyone but it could appeal to some Brits.
Speaking on his ITV Money Show, the financial journalist said: “This might appeal to some grandparents out there. Even people who earn nothing, including people under 18, can get 20 per cent tax relief on a pension.
“If you make the maximum you can make each year, you put £2,880 away and £3,600 is invested in the pension, so you see the difference, that’s the tax gain.
“He gets the relief and the extra is given as relief at the source. Your pension firm will add it automatically in most cases.”
Pensions work by compounding interest over time, meaning the interest earned on the money invested in the pension pot eventually earns the interest itself.
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The longer a pension pot is open, the more compound interest one will accrue, so starting a pension fund for a child is a good way to accumulate funds over time, as it will grow over several years.
Mr Lewis explained: “The money is locked in until they’re at least 57 under the current rules so I need to be clear, this is not a short-term thing we’re talking about here. But starting a pension early is a big advantage because it has more time to grow.”
The current age at which a person can access their pension is 55 although this is due to rise to 57 from April 2028.
Mr Lewis spoke about some of the options available to a grandparent who wants to set up a pension for their grandchildren.
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One option is a stakeholder pension, which has capped fees and often offers low and flexible contributions.
Another type of pension is a SIPP (self-invested personal pension), which offers more flexibility in how the investments in the pension work.
One may choose to invest in various assets such as company shares, property and land trusts and investment
Mr Lewis said: “Get general financial advice if you’re not sure. If you want to put money into your child’s pension, if you’re a grandparent and they wonder if they’ll ever remember me, they will if you pay for their pension.”
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He also shared a simple rule with his audience about how much a person should set aside for their pension.
The rule is to set aside half the person’s age, as a percentage of their income. For example, a 30-year-old should set aside 15 per cent of their income in pensions.
Mr Lewis said that although not many people do this, the rule of thumb “tells you, the sooner you start, the better, and that’s why this is useful”.
The rising cost of living means that pensioners need more funds to pay for their daily needs.
Recent figures from the Pensions and Life Savings Association found that a single person would need £12,800 a year for a minimum standard of living in retirement.
Someone wanting a moderate standard of living would need £23,800 and those hoping for a comfortable retirement would need £37,300 a year.
Tom Selby, head of retirement policy at AJ Bell, said: “Sadly, people on the lowest incomes face the biggest challenge, on average, as they tend to spend a greater proportion of their income on things like food and energy, both of which have seen noticeable price increases over the past 12 months.
“That said, retirees are facing painful rises in the cost of living across the board, with the expenditure required for a single person to enjoy ‘moderate’ and ‘comfortable’ living standards in retirement increasing by 12 percent and 11 percent, respectively.”
