Intergenerational Financial Planning
Paul Killik for the Financial Times
Having been born shortly after the war, I am an early “Baby Boomer”, the most financially fortunate of all the generations that have recently been identified as such.
We have enjoyed a benevolent welfare state, free higher education, a rise in the property market the likes of which are unlikely to be repeated as well as final salary pension schemes that can no longer be afforded.
Scenario 1 shows that a single JISA subscription of £4,128 on day one of the child’s life could be worth £125,600 on the 70th birthday.
Scenario 2 shows the effect of investing £4,128 each year for 10 years, in other words a total of £41,280, could be worth £1,018,345 on the 70th birthday.
As will be seen from Scenario 3 if, from age 18, £4,000 was withdrawn from the JISA each year until the 50th birthday and reinvested into a LISA, where the government adds 25% to the subscription for 32 years, the resultant figure could rise to £1,228,124 on the same original capital investment of £41,280.
With the support of a benevolent family a child could, in addition to the JISA and LISA, also invest £2,880 on the day of their birth into a JSIPP. The Government provides a further £720 making a total investment of £3,600.
Scenario 4 shows that £3,600 could grow to £109,535 and Scenario 5 repeats the exercise each year for 10 years, a total investment of £28,880, could rise to £888,091.
Scenarios 6 and 7, show the effect of doing both the JISA and the JSIPP for 1 year and for 10 years. A total investment in both for one year could grow from £7,008 to £235,135 and from £70,080 to £1,906,436.
The income withdrawn from ISAs would be tax free, but from SIPPs would be subject to income tax. However, under current rules 25% of the SIPP can be withdrawn tax free from age 55 rising to 57.
We encourage you to contact your Investment Manager if you would like to discuss any of this further.