How do I set up a pension fund for my 25-year-old son with Asperger’s?

I have a 25 year-old son who has Asperger’s Syndrome. He is very loose with money.

I would like to start a pension plan for him but would like it protected, so that he is not able to draw down from it and spend the fund before his selected retirement age.

At retirement, who would make the investment decisions for him, if his parents are not around?

At the moment we don’t have any official power of attorney from him.

Tanya Jefferies, of This is Money, replies: You are understandably concerned to ensure your son will be provided for in later life, when you won’t be around to look out for him financially.

We asked a legal expert to give her take on your plan to start a pension on his behalf, and she explains that this is very doable and the best way to approach it below.

She also touches on a matter that highlights why you are right to put protections in place if you feel your son is not very worldly when it comes to handling money, and might be tempted to draw on a pension before he is 55.

There is a very heavy tax penalty for doing this, and as result no legitimate company is likely to help your son do it – only fraudsters. 

However, HMRC will still impose the tax penalty even if a pension has already vanished in a scam.

This is Money often receives questions from younger people asking how to tap their pensions early – usually because they are in debt – and we send the above warning about this disastrous double trap to all of them.

It is worth staying alert to this if you end up setting up a pension that your son retains any control over, and if you think he might be lured into trying to access it while under 55.

Samantha O’Sullivan, associate in the estate planning department at law firm Parker Bullen, replies: There are three issues that 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’s managed?

The good news is that it’s possible to set up a pension for your adult son and make contributions.

However, he will need to know that you have done this, and the pension will be his, not yours, regardless of who is making the contributions.

Contributions by a parent are treated as if they had been made by that child, so the amount that you can contribute depends on your child’s circumstances, not yours.

You mention that your son has Asperger’s Syndrome, and this needs careful legal consideration, especially as you say that he is ‘loose with money’.

He may be very talented and capable of making financial decisions and have the capacity to manage his own financial affairs, albeit that his spending can be reckless.

You don’t say whether your son is employed which is relevant when calculating how much can be paid into his pension annually (whether by him or by you).

If he is working, there are maximum annual pension contribution limits set at the lower of £40,000 (tapered down to £4,000 for very high earners) or 100 per cent of his earnings.

If he’s not working, contributions of up to £2,880 annually still qualify for basic rate tax relief, boosting this figure to £3600 gross.

Without knowing the exact details, I would assume that your priority is ensuring your son has money to live on in his later years.

There are therefore two considerations: building the pot of money and ensuring that it is used wisely.

In normal circumstances it would be your son who would be consulted about how contributions are invested, and the level of investment risk he would be willing to accept.

It would also be up to him to decide when he wanted to draw down on the pension, which currently can’t be done before he is 55 except in very serious circumstances such as terminal illness.

My caveat to this is that there are plenty of scammers out there who will happily try to get you to part with your savings before this age, which could lead to the loss of the pension and lead to a heavy tax penalty even if the money has disappeared, and he probably needs protecting against this risk given his propensity to spend.

My recommendation would be firstly to get a power of attorney for your son in place.

I infer that you feel that he has the capacity to make such a document. If this is the case, I would suggest getting a ‘property and financial affairs’ lasting power of attorney.

Depending on the specific circumstances this can authorise you/your spouse to manage your son’s finances, including his pension, on his behalf, both while he has the capacity to do so himself, and if he loses capacity.

I would suggest that you take some advice as it may well be that your son is able to manage day to day finances, albeit he’s loose with money, but needs protection with major financial decisions such as his pension.

Thinking longer term it is possible in the document to appoint what are known as ‘replacement attorneys’, who will take over if the original attorneys die, or become unable or unwilling to act.

The replacement attorneys – perhaps a sibling or other relative, but if necessary a professional if no one else can take it on – could then make decisions for him on retirement if you are no longer around at that point.

If your son does not want to make a power of attorney, you can, of course, still set up a pension and contribute to it, but there would be no-one to make management decisions or to take steps to protect him from being exploited financially. 

If he cannot make a power of attorney – because he does not have mental capacity, or loses capacity before the process is started, you would still have the option to apply to the Court of Protection to be appointed as his financial deputy: essentially, a deputy is a court-appointed attorney, but a deputy is subject to the supervision of the court in a way that an attorney is not.

The process of being appointed a deputy takes much longer and is much more expensive than the process of appointing an attorney, and if the original deputy dies, the whole appointment process has to begin again – there is no way to arrange for replacements automatically to take over.