Cash on delivery: it's never too early to give your baby a pension

Kate Hughes looks at the savings schemes that will help your children find their feet financially

More babies are born this month than at any other time of the year. So if you have spent the past few months buying cots and prams and painting the spare room, congratulations. But you may be already feeling the financial pinch. And if you are a new parent, the bills have only just started landing.

Parents spend an average of £186,032 raising a child to the age of 21. That's around £738 a month, according to the friendly society LV=, and that figure is set to increase by 42 per cent by 2012. But many people aren't taking advantage of the range of money-saving, money-making and tax-relief schemes available that could make a big difference to the new family.

Child benefit is the basic means by which the Government helps cover some of the costs of bringing up children. Biological and adoptive parents receive £18.80 for the eldest child and £12.55 a week for each additional child, up to the age of 16 or 19 if they are in full-time education. The relevant forms are included in the "bounty packs" provided by the hospital immediately after the birth. If these go astray, you can claim online at

Around 90 per cent of families also qualify for child tax credit. The amount received depends on the number of children you have, your employment status and income, whether you pay for childcare, and any disabilities. For more information go to: www.hmrc. gov. uk/taxcredits/do-you-qualify.htm

If you work for at least 16 hours a week, you may also be able to claim back up to 80 per cent of your childcare costs, as long as your child is looked after by a registered carer. Go to www. for more details.

And then there are child trust funds. A CTF is a savings and investment plan for every child born on or after 1 September 2002. The Government sends out a voucher worth £250 for parents to invest in the CTF account of their choice. Parents, grandparents and friends can top up that account to the tune of £1,200 every year. The account, which belongs to the child, is tax free and can't be touched until the beneficiary turns 18.

Parents have a choice as to where to invest the £250: in a cash savings account; in a stakeholder account – which channels the money into a range of companies that fit government criteria for low-risk investment; or in a shares investment account, the riskiest choice but the one that usually offers the greatest returns long term.

If the voucher is not invested in the first 12 months, not only will your child lose the interest on that amount but the Government will randomly allocate the cash to any one on a list of available funds, making the interest rate or performance a matter of pot luck. Go to www.childtrust for more details.

If you want to save more than £1,200 a year, or your child is not eligible for a CTF because he or she was born before September 2002, a range of long-term savings plans are available on the high street. "A good way to set money aside is to calculate the child benefit being received and divert this money on a monthly basis to a plan giving as much tax efficiency and flexibility as possible," suggests Simon Hodge of independent financial advice firm Simon Hodge Financial Planning.

"NS&I offers a number of excellent alternatives which are generally tax free. Children's bonus bonds, for example, offer a reasonable rate of return: around 3.75 per cent per annum compound over five years including a bonus.

"And many high-street banks offer children's accounts, which get them into the savings habit and build up money for the future."

It may seem a distant consideration at the time, but setting up a pension for your newborn could prove very rewarding thanks to huge tax benefits and the build-up of interest over many years.

Matthew Richardson, pensions manager for price- comparison website, says: "All of the main pension providers offer low-cost stakeholder products for saving for a child's retirement, including Virgin Money's children's pension."

The maximum yearly contribution under the current tax rules is £2,880. To encourage pension savings, the Government will top this up with basic-rate tax relief at 20 per cent, which instantly turns that sum into £3,600.

"If the maximum contribution was made for the first 18 years of a child's life, a typical retirement pot at 65 – in today's money – would be around £318,000, based on annual growth of 7 per cent. Typically, for a male, this would generate around a £12,000 annual income," adds Mr Richardson.

But there are many other, increasingly ingenious, ways to boost your children's financial situation – such as the website Kidstart. This is a free savings club which works in the same way as an online cashback site, allowing its members to collect cash savings for children when shopping at over 200 well-known retailers and service providers, including Marks & Spencer, Asda, Dixons and British Airways.

How much you get depends on the retailer, but it can be up to 20 per cent of your normal shopping. The cash is kept in a separate, secure account where the children's profiles and savings can't seen by anyone other than the parents. Go to

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Suggested Topics
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea