20th March 2013
Millions of children whose savings are trapped into old-style Child Trust Funds will now be able to make a switch into Junior Isas following an annoucement in today’s Budget, though not quite yet. The change will go out to consultation, a process that is expected to last at least three months, so it might not be possible to transfer until next year.
Both sorts of products, the Child Trust Fund and the Junior Isa, allow parents to save up to £3,600 a year tax free on behalf of their child but the number of Child Trust Fund investment options is much more limited, partly because the Child Trust Fund had to take investments from as little as £250.
Providers of junior Isas can set their own limits. The announcement has been broadly welcomed by the investment industry though some are demanding immediate action.
Jason Chapman, Managing Director at discount broker Willis Owen, said: “The transfer barrier between CTFs and Junior ISAs needs to abolished immediately. A commitment to a consultation is good news, but people holding CTFs will continue to be unfairly punished while we await the outcome.”
“Similarly, the Government says it is committed to supporting parents by ensuring that there continues to be a clear and simple way to save for all. Our research shows that the situation surrounding children’s savings is anything but simple and clear. We’ve found that four out of five people don’t understand the rules around CTFs or JISAs. We’re in favour of any measures that simplify the investment process and help to explain the rules.”
Danny Cox, Head of Financial Planning at Hargreaves Lansdown says: “Common sense has broken out at last. Child trust funds have been in terminal decline since 2011, seeing millions trapped in expensive products or suffering lower interest rates than their Junior ISA counterparts. This consultation will pave the way for a significant improvement in choice and outcomes for over 6 million children and should ultimately lead to a full merger”
Hargreaves Lansdown says there are 6,141,000 children with Child Trust Fund accounts of which 78 per cent are stakeholder accounts.
It says 78 per cent are stakeholder accounts or 4,840,000 which carry certain investment restrictions, just four per cent non-stakeholder share accounts or 257,000 and 17 per cent are cash accounts or 1,044,000. They may now be able to transfer into the new junior Isa regime if they decide to do so.