I know there will be some of you who are mad at me for suggesting such a thing. But hear me out! I genuinely reckon it’s a good idea to get a baby a pension as soon as they’re born. The earlier the better – in fact, do it when they’re still in the womb!

THAT SAID – I’m not a financial advisor (someone who has sat exams about all things pension-related), so can’t give you *advice*. I can tell you what I think, or what I would do, but you really should talk to an expert when making big money decisions.

I also want to say here and now that this idea isn’t for everyone. If you can afford to do it, it might be a good idea for you and your family though.

Ok – with caveats and warnings over with, let’s get to it.

I can’t pay into my pension and save up for a deposit on a house. A solution?

I’ve spent a lot of my career trying to convince young people to put money into their pensions. Most of us *Millenials* are skint as it is, and putting away 5-10% of your earnings to not see until you’re at least 55 isn’t exactly appealing. I get it.

I see the same situation time and time again. Someone graduates, are skint, get a job, are still kind of skint – hit their mid-20’s and earn a little bit more at which point they may have a bit more money.

But guess what young people want to do with their extra money? Well, most of the time it’s save for a deposit on owning our home because us Brits are obsessed with it (I have thoughts on that!).

Here’s the question? And the problem we need to tackle as a country. Young people say: ‘I don’t have much money, so do I save up for a deposit on a house or do I pay into my pension?‘

The belief is you pick one – you can’t have both.

Stop eating all those bloody avocados! (I joke…)

I’m not – at this point anyway – here to tell you you can have it all. Just stop buying Pumpkin Lattes and Avocado toast and all that…

Just so you know what I did…

I saved about 10% of my wage into a pension when I first got a job. I didn’t earn much, so I didn’t save much.

Then I got paid more at a new job, but it didn’t have a pension scheme and didn’t consider my retirement at all. So I saved up for a deposit on a house.

Got made redundant a couple of days before buying a house (cheers guys!), didn’t have a pension for another year because I was freelancing (ahem, jobless) but then got the job I have now and really put in quite a bit to try and make up for that lost time.

Taking a pension holiday so you can save, without hurting your retirement pot

So how can you, in those years when you do start earning, take a ‘pension break’ – without it hurting you?

I think we rethink how we go about this.

Now what if (assuming you can afford it), you have a baby, and put £100 into a pension you set up, which you’ll pass onto them when they are 18?

I say £100 – but if you could do £250/more – it could be worth £1 million by the time they retire thanks to compound interest – just 18 years of paying in.

Small amounts add up to A LOT over a lifetime. I remember being told that compound interest is the 8th Wonder of the World.

Oh, and the government automatically refunds tax on pension savings of up to £2,880 per year, per child.

Is compound interest really that impressive? IT REALLY IS!

Grandparents and family members can put in money from birthdays, Christmas or even inheritance whenever it comes along. Whatever can go into the pot, to grow over a lifetime will be worth it because of the growth.

I know that so many kids have savings that aren’t really doing anything, but with a pension, the taxman tops up payments you make by at least 25%.

Let me show you an example of how this would work (I used this tool):

£100 a month, for 18 years = £21,600 saved.

The government will top up to = £27,000 (already FREE MONEY!)

Now, leave that money in there, with let’s say with 5% growth, compounded, until you’re 60 – you could get over £175,000.

THAT IS £153,400 TOTALLY FREE (potentially obs!). Which is my head sounds amazing if you can spare that money.

The reality is that during those 18 years of paying in, you are likely at your peak earning time (though I, of course, understand children aren’t cheap)!

This would mean that your child could concentrate on saving up for a deposit when they first get a job, without the stress of not being able to afford to put the heating on when they retire (or not being able to retire at all!).

Don’t stop paying into your pension when working though

BUT – I wouldn’t want people to opt-out of their pension completely during those saving years. Employee contributions are literally free money – and you know me, I don’t turn my nose up at free cash. But it would ease off the pressure.

The reality is you need a lot of money to retire, especially if you want to do it in style (I see myself sunning it in Barbados, with cocktails and toyboys personally!).

If you did get that £175,000 (the example from earlier) from your parents saving into a pension when you were a child (and you did nothing to top that up) – after retiring at 60 this could give a tax free lump sum of £43,750, and a guaranteed (taxable) monthly income of £725 to live on for 20 years. That is not enough for the Pina Coladas I require personally.

OF COURSE – a pension is an investment, so it can go up and down like everything else. There are no definites when it comes to money.

This is a way of re-looking at when parents give large amounts of money to their children

Instead of saving and giving your child a chunk of money for University (I think that’s a waste of time!), a wedding or even after you die – re-shift the cash giving to right at the beginning of your child’s life.

You could get a lot more bang for your buck!