I have a 25 year old son who has Asperger’s Syndrome. He is very loose with money.
I would like to create a retirement plan for him, but I would like him to be protected, so that he cannot dip into it and spend the fund before the retirement age he has chosen.
In retirement, who would make the investment decisions for him if his parents weren’t there?
At the moment, we have no official power of attorney from him.
Pension plan: how to create a pension fund for my son with Asperger’s syndrome and prevent him from spending it
Tanya Jefferies of This is Money responds: You are understandably concerned with ensuring that your son will be provided for later in life when you are not there to support him financially.
We asked a legal expert to give her advice on your plan to start a pension on her behalf, and she explains that it’s very doable and the best way to approach it below.
She also touches on a question that highlights why you’re right to put safeguards in place if you think your son isn’t very worldly when it comes to money management and might be tempted to collect a pension before he turns 55. year.
There is a hefty tax penalty for doing this, and therefore no legitimate companies will help your son do this – only scammers.
However, HMRC will still impose the tax penalty even if a pension has already gone missing in a scam.
This is Money often gets questions from young people asking how to tap into their pension sooner – usually because they are in debt – and we send them all the warning above about this disastrous double trap.
It’s worth keeping an eye out for this if you end up setting up a pension over which your son retains full control, and you think he might try to access it when he’s under 55. year.
Samantha O’Sullivan, a partner in the estate planning department at law firm Parker Bullen, responds: Three questions need to be considered here.
Can you start a pension for your son? Can you contribute to it? And who can make decisions about how it is managed?
The good news is that it is possible to set up an annuity for your adult son and contribute to it.
However, he will need to know you did, and the pension will be his, not yours, no matter who contributes.
Samantha O’Sullivan: My recommendation would be to first get a power of attorney for your son in place
Contributions from a parent are treated as if they were made by that child, so the amount you can contribute depends on your child’s situation, not yours.
You mention that your son has Asperger’s Syndrome, and that requires careful legal scrutiny, especially since you say he’s “loose with money.”
He can be very talented and able to make financial decisions and have the ability to manage his own financial affairs, although his spending can be reckless.
You do not say whether your son is employed, which is relevant for the calculation of the amount that can be paid annually on his pension (whether by him or by you).
If he works, annual pension contribution limits are set at the lower of £40,000 (reduced to £4,000 for very high earners) or 100% of his earnings.
If not working, contributions of up to £2,880 a year are still eligible for basic tax relief, bringing that figure to £3,600 gross.
Without knowing the exact details, I guess your priority is to make sure your son has money to live on in his later years.
So there are two considerations: building up the kitty and making sure it’s used wisely.
Under normal circumstances, it is your son who would be consulted on how the contributions are invested and what level of investment risk he would be willing to accept.
It would also be up to him to decide when he wants to withdraw his pension, which currently cannot be done before age 55 except in very serious circumstances such as a terminal illness.
My caveat to this is that there are plenty of scam artists out there who will happily try to split your savings before that age, which could result in the loss of the pension and incur a hefty tax penalty even if the money has disappeared, and he probably needs to be protected against this risk given his propensity to spend.
My recommendation would be to first get a power of attorney for your son.
I take it that you believe he has the capacity to produce such a document. If that’s the case, I would suggest getting a “property and financial affairs” continuing power of attorney.
Depending on the specific circumstances, this may authorize you/your spouse to manage your son’s finances, including his pension, on his behalf, as long as he has the capacity to do so himself, only in the event of loss of ability.
I would suggest that you seek advice as your son may be able to manage his day to day finances even if he is loose with money but needs protection with major financial decisions such than his pension.
Thinking of the longer term, it is possible in the document to appoint so-called “replacement lawyers”, who will take over if the original lawyers die or become unable or unwilling to act.
Substitute lawyers – perhaps a sibling or other relative, but if necessary a professional if no one else can support him – could then make decisions for him on retirement if you don’t. you’re no longer there at that time.
If your son does not want to make a power of attorney, you can of course still build up a pension and contribute to it, but there would be no one to make management decisions or take steps to protect him from financial exploitation.
If he cannot make a power of attorney – because he has no mental capacity, or he loses his capacity before the start of the procedure, you will always have the possibility of asking the protection court to be Appointed Financial Deputy: Essentially, a deputy is a court-appointed attorney, but a deputy is subject to court supervision in a way that a lawyer is not.
The process of appointing a deputy takes a lot longer and costs a lot more than the process of appointing a lawyer, and if the original deputy dies, the whole appointment process has to start over – there is no is no way to automatically arrange replacements to take over.