It’s that time of year when you need to buy Christmas presents for the children in your life. While the latest must-have toys and gadgets are at the top of many Christmas lists, you could consider getting them something different this year. Rather than traipsing around the packed high street or searching high and low for the best deal online only to buy them something that will be thrown in the back of the cupboard by the end of January, you could get them a gift to last a lifetime, like a pension.

Pensions for children – a lifetime gift

While a pension is unlikely to appear at the top of a child’s Christmas list, it is one of the greatest gifts you could give them. When considering investing for children, many people think about saving for life events such as a wedding, buying a house or even towards the costs of higher education but just because it is further away does not make their retirement any less important. By starting to save for their retirement now, all of their Christmases could come at once when they can access the funds after the age of 55.

The child’s parent or guardian will need to set up the pension but once opened, grandparents, friends and relatives can make contributions into it. The maximum that can be paid into a child’s pension is £2,880 per year. You could pay in a lump sum all at once, or spread your contributions out across the year by investing a smaller amount each month.

If the maximum annual contribution is made, the state will top it up by £720, making a total contribution of £3,600. Over a period of 18 years, this would add up to £64,800 (£51,840 in personal contributions and £12,960 in Government tax relief). Paying £2,880 into a child’s pension every year until they turn 18, and achieving 5% annual growth, would give them a pension of more than £640,000 by the time they reach 55.

Santa’s elves would be hard pushed to create something as good as this!

(And don’t forget that gifts like this will also reduce the value of your estate so you will pay less Inheritance tax.)

These figures are for illustrative purposes only. Magenta is authorised and regulated by the Financial Conduct Authority.