2nd August 2013
The Government’s latest saving initiative the Junior Isa has got off to a promising start however kids maybe losing out on better long-term gains as families opt for cash over shares. Junior Isas were launched in November 2011 to replace child trust funds. Presently parents are allowed to save up to £3,720 a year in cash and/or stocks, and all growth and interest earned is tax-free.
Despite some six million children being eligible, in the first five months, just 71,000 accounts were set up. However this figure accelerated, rising to 295,000 during the full 2012/13 tax year, with parents and family investing £1,327 on average, a total of £392m.
Any child resident in the UK, born on or after 3 January 2011 can open a Junior Isa. In addition any child born between 1 September 2002 and 3rd January 2011 who did not qualify for a CTF is also eligible. Right the now Government is looking at allowing CTF holders to transfer over to the Junior Isa account. Danny Cox, head of financial planning, at Hargreaves Lansdown says: “Junior ISA seems to be gaining some momentum which will be improved once transfers are allowed from CTFs.
“The consultation process is underway with final submissions due on the 8 August. Allowing transfers would seem far more likely to go ahead than an all-out merger and doing nothing is not a realistic an option”
At 295,000 accounts, that is just 5 per cent, or one in 20 families setting them up but notably the average investment size was well above Child Trust Fund and some providers did not launch their products until April 2012. HMRC describes the take up as being “in line with expectations”.
But of the 295,000 launched accounts, just 92,000, about a third of junior Isas are invested in stocks and share with the remainder in cash accounts. But given that a child will not be able to access the money until their 18th birthday, experts fear that savers could be losing out on potentially more rewarding gains, given that over the long-term, investing in shares beats cash, albeit with risk and volatility along the way.
Gavin Oldham, chief executive of stock broker, The Share Centre, commenting on the take up says: “Junior ISA subscriptions are off to a promising start, with the number of accounts more than quadrupling in the last year. However, 69 per cent of these are cash junior ISAs, and as these accounts are long term holdings, it is disappointing that only 92,000 Stocks and Shares Junior ISAs were subscribed to in 2012/13. There is clearly a long way to go. Only one in twenty eligible children has so far benefitted from the scheme – and it pales in comparison to the popularity of the more established adult Isa.”
“Financial planning for children’s futures should be a central part of a family’s savings and investment decisions, rather than a cherry on the cake. A stocks and shares Junior ISA fully subscribed for 18 years will pay dividends when it comes to providing a strong financial basis for independence in adulthood. However, the Junior ISA does seem to be helping change savings behaviour with many of those who already value adult ISAs.
Charity leads take-up of stocks and shares Junior Isas for children in care
But of the 92,000 stocks and shares accounts opened, charity The Share Foundation is responsible for setting up 32,000 or, 35 per cent of these. The Share Foundation has been set up to give children in care, who may have no family support and rely entirely on the community the chance to have a meaningful inheritance at the age of 18. The Department for Education has appointed The Share Foundation to establish Junior ISAs for children and young people in care. It is responsible for opening their accounts with an initial Government contribution of £200 and ensuring the accounts are properly operated and invested appropriately across a range of providers.
“When people leave care, they are on a cliff edge in many respects. The Share Foundation is trying to give them a break, when they reach adulthood,” says Oldham, who is also one of the charity’s directors. Having already set up approximately 80 per cent of the total anticipated accounts, The Share Foundation is now launching a campaign to raise additional funds for them. The goal is an extra £800 per account, £30 million in total by 2014.