Junior Isas: Is this the best way to save for our children?

31st March 2011

According to financial adviser Hargreaves Lansdown, 1.2 million children will benefit from the new tax-free savings scheme.

It also means that the six million children who missed out on child trust funds (CTF) because they were born before the scheme was launched or after it was scrapped, can now have a savings account.

The government is set to confirm Junior Isas willl have a maximum annual allowance of £3,000, which can be invested in stocks and shares or in a cash deposit.

The money cannot be accessed until the child turns 18.

Chancellor George Osborne announced the CTF replacement in last week's Budget.

The Guardian  reports that unlike the CTF, the Junior Isa does not have a government contribution, it also has a £3,000 annual deposit limit, unlike the CTF which had a maximum of £1,200.

Danny Cox, head of advice at Hargreaves Lansdown, said the Junior ISA, "had the potential to be the most successful children's savings scheme of all time"

Mr Cox: "For longer term savings a stock and shares Junior ISA should produce a much better return than cash. The probability of stock markets outperforming cash over 18 years as 99% according to Barclays Equity and Gilt Study 2011."

He claimed that saving the maximum £3,000 in a Junior ISA every year from birth until age 18 could amount to a savings total of £95,730, that is assuming a 6% return after tax and chages.

As a parent myself, I'm pleased the government has decided to build on the success of the CTF, albeit withdrawing the post-birth £250 and subsequent at-age 7 £500 top ups.

I don't feel we should be subsidised to save for our children, although I can see that some parents badly need an incentive in these cash-strapped times.

The Junior Isa builds on the success of its adult counterpart – it's easy to understand and parents who want to save will do so anyway.

And this current generation of babies and toddlers will need their parents to save all they can.

Compared to her grandparents – who benefitted from rising house prices, the post-war boom and the ability to retire age 60 – my daughter is not going to have a very easy time financially.

If she wants to stay in education after she's 18 she's going to face a higher education bill of £30k plus.

That's before she's even started work. I don't expect she'll have a pension either. My National Insurance contributions are not being pot into some grand savings pot but are instead paying today's 60 somethings; so what will happen when my 26-month old gets to 18.

I can only guess but one thing is likely – my daughter and her friends will not have the luxury of being able to retire in the prime of their lives.

So I'm going to put aside whatever cash I can for her, the Junior Isa is a good start.

UPDATE: The government has now published final regulations relating to Junior Isas.

Until the child reaches 16, accounts will be managed on their behalf by a person with parental responsibility for that child.

This will initially be the person who applied for the account for the child, but this responsibility can be transferred to another person with parental responsibility.

At age 16, the child assumes management responsibility for their account.

Withdrawals from Junior Isas will not be permitted by account holders until the child reaches 18

 Eligible children over the age of 16 will also be able to open Junior Isas for themselves.

Children will be able to hold up to one cash and one stocks and shares Junior ISA at a time. It will be possible to transfer accounts between providers, but it will not be possible to hold more than one cash or stocks and shares Junior ISA at any time. It will not be possible to transfer CTFs into Junior ISAs, or vice versa

If the child has both a cash and a stocks and shares Junior ISA, this contribution limit will operate across them both – so a total of £3,000 of contributions each year will be permitted into both accounts combined.

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