23rd December 2013
The Government is reportedly set to lift the ban on Child Trust Fund transfers to Junior ISAs from April 2015 giving millions of parents the chance to get a better deal for their kids writes Philip Scott.
The Chancellor, George Osborne said to The Daily Mail the move “supports hard-working families who want to save for their children”.
He added: “So I’m delighted that, as a result of these changes, over six million children who currently have savings in a Child Trust Fund will be able to benefit from better returns and lower charges on those savings.”
The Child Trust Fund (CTF) scheme was originally launched by Labour in 2005, where those born between 1 September 2002 and 2 January 2011 were given a £250 voucher, where additional contributions could be made.
Today the six million children in the UK with a CTF have some £5bn invested. But the Coalition government scrapped CTFs and replaced them with the Junior Isa (JISA).
Unfortunately since the launch of the JISA, CTFs have become second tier and many somewhat left behind. In some cases interest rates offered by providers were lower on CTFs than on their JISA counterparts, disadvantaging many children simply because of their age.
As of 19 November, the top interest rate for a CTF was 3%, and the best for a JISA was 6%.
To make matters worse, those who had been saving into a CTF were not allowed to switch their cash over into the more flexible and generous JISAs, or even open one.
About Junior ISA
As the name suggests, a Junior ISA works in a very similar way to the adult ISA – there are two versions, a cash and a stocks and shares version. The investments are not subject to capital gains tax, income tax on savings or to further tax on dividend income.
The maximum contribution of £3,720 per annum, rising to £3,840 from 6 April 2014, can be divided between cash and stocks in any proportion but only one cash and one stocks and shares Junior ISA can be held per child.
JISAs are converted to adult ISA at age 18 and passed to the ownership of the child to cash in or to continue to invest as they choose.
Danny Cox, head of financial planning, at fund broker, Hargreaves Lansdown says: “This is great news. The days of the Child Trust Fund have been numbered since the launch of the Junior ISA. 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 change will pave the way for a significant improvement in choice and outcomes for over six million children and ultimately lead to a full merger. Transfers should happen from April 2015 and in the meantime, parents and grandparents who are saving into Child Trust Funds for their children or grand-children should continue to do so.”
Darius McDermott, managing director of Chelsea Financial Services adds: “Despite saying that the changes would be made ‘as soon as possible’ the expected date is not until April 2015, which is 16 months away. I can’t understand why there needs to be further delays and would have hoped the changes could be made this coming April instead. We’ve clearly got some further campaigning to do in the new year.
“As I’ve said before, I don’t see why a child’s date of birth should stop them getting the best deals for their financial future – and they should be getting them today, not in over a year’s time.”