How to help your adult child to save for their own retirement

A father and his adult daughter laugh together.

Every parent wants to be able to provide for their children. One way you may have considered supporting your child is by helping them to save for their own retirement.

The Telegraph reports that nearly 9 in 10 middle-earning private sector employees are not meeting the recommended retirement saving goal of 15%, and 3.5 million of these individuals pay nothing into their pension in a given year.

The cost of living crisis hasn’t helped the situation with the Guardian reporting that last year 1 in 5 Britons cut their pension contributions or stopped them all together. 

With figures like these in mind, building a plan to aid your adult child in building a retirement fund now could have a big positive impact on their long-term quality of life.

There are several ways you can help your adult child to build enough wealth to support them in their later life. Read on to learn how you can maximise this support.

You can gift directly to their pension

By making third-party pension contributions, you can directly pay into your child’s pension pot, helping them build the fund they need to achieve their desired lifestyle in the future.

Normally, third-party contributions into your child’s pension are treated as if your child has made the contributions themselves. This would mean they receive 20% tax relief from the government when you contribute, and may be entitled to 40% or 45% tax relief if they are a higher-rate or additional-rate taxpayer respectively. 

They can claim this through self-assessment and so your contribution could end up being very tax-efficient for them.

If you are able to afford it, gifting money to your child in their early adulthood could contribute towards a substantial pension in their retirement.

As reported by MoneyAge, if a 50-year-old parent gifted their 20-year-old child £200 a month over a 20-year period, the parent would gift £48,000 in total. Based on the average age of retirement in the UK of 64, the child could have £329,573 in their pension by the time they finish work. 

This is almost five times the amount the parent contributed the pension, as a result of investment growth and tax relief on contributions.

These figures assume the pension pot attracts basic-rate tax relief, and grows at an estimated 5% per annum, with a 0.5% annual management fee.

Contributing to your adult child’s pension could help reduce your Inheritance Tax bill

Making gifts to your adult child can help you to reduce the value of your estate for Inheritance Tax (IHT) purposes. It can help you to transfer wealth to the next generation tax-efficiently.

If you make the pension contributions more than seven years before you die, then they will normally fall outside your estate for IHT purposes.

Additionally, taking advantage of the “gifting from income” IHT exemption could mean you can make regular pension contributions and see the value of these fall outside your estate – even if you die within seven years of making them.

For gifts to be eligible for the gifting from income IHT exemption, they must meet certain criteria:

  • All gifts must be from income.
  • Giving gifts must not impact your quality of life.
  • Gifts must be part of your normal expenditure.

To avoid incurring any unwanted IHT costs for your child it could be a good idea to speak to a financial planner.

Spending your pension last could cut your child’s IHT bill

Since Pension Freedoms legislation came into force in 2015, individuals in the UK have had more control over how they can access their pensions. One advantage of these reforms is that pensions normally fall outside your estate for IHT purposes.

If you die before the age of 75 the money in your pension is usually passed on tax-free, while Income Tax at the recipient’s marginal rate is payable if you die aged 75 or over.

Because of this, it could be beneficial to use other assets that will be classed as part of your estate to support yourself in retirement before drawing from your pension.

Speaking to a financial planner could help you and your child plan for their retirement

If you want to start helping your adult child save for their retirement, then seeking professional assistance could help. 

We can build a personalised plan that could boost your adult child’s retirement savings, setting them up for a secure future.

To discover how we can help to transfer wealth tax-efficiently to your adult chid, contact us by email at or call us on 01189 876655.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.