Posts Tagged ‘Child Trust Fund’
Budget 2013: Child Trust Funds and Junior ISAs
Scottish Friendly welcome the Chancellor’s decision to consult on the integration of Child Trust Funds and Junior ISAs and urges the chancellor to switch all CTFs to the JISA regime emulating the exchange of former PEP wrappers to ISAs.
One need only take a cursory glance at the confusion and poor customer outcomes created in pensions as successive governments changed wrappers over time causing a historic patchwork of different regimes and contract types over generations. The last thing that the fledgling long term child savings industry needed was a similar set of confusing and competing wrapper regimes.
Scottish Friendly was always a strong supporter of the CTF and campaigned vocally for its retention. Additionally at the time of the Junior ISA launch Scottish Friendly was vocal in its opposition to the introduction of an almost identical child savings regime for what seemed entirely political point scoring.
There is no doubt that the new child savings regime has been a shadow of its former self with the Junior ISA increasingly becoming a middle class tax-break, compare this to the Child Trust Fund as the most successful mass market product in history.
However we have to recognise where we are at the moment as opposed to fighting past battles, we should therefore be thinking about how to make the cause of child savings work best under this regime. The Junior ISA regime is here to stay and it achieves (in our focus group sessions) a far greater immediate customer recognition that the Child Trust Fund, thanks to use of the universally recognised “ISA” badge.
To Scottish Friendly then the most realistic option available is a single child savings regime under the JISA badge. This will not only simplify the tax wrapper regime for child savings many parents have already found themselves with one child owning a CTF and another with a JISA. The confusion will simply lead to many parents giving up. A single simplified regime will make this much clearer and simpler for parents and children.
Additionally a single JISA regime would also make the market considerable more competitive and flexible. Both of these are essential ingredients to achieve consumer trust and participation in a market. Leaving aside the issue of TCF (6) there is nothing more off-putting and offensive to a client than to have unnecessary barriers put in their way when it comes to making choices.
By retaining the CTF regime a generation of child savings plans would have been ghettoised in an increasingly uncompetitive market with potentially higher charges (as evidenced by one high profile decision in the past few weeks). Switching to a single JISA regime will allow a much larger market to obtain the benefits of product innovation that competition will encourage.
Furthermore a single market will be of immense benefit to the industry, who overnight will look at the JISA market not as a small niche opportunity but as an attractive mass market worthy of investment and innovation. This in turn will benefit all consumers as competition and innovation creates greater choice and opportunities.
The key ingredients to building a successful financial product are consumer understanding, simplicity and trust. Four years ago the Child Trust Fund encapsulated those values but, for all the wrong reasons, this no longer applies. It’s time to regain those values and it can be best achieved by a single JISA regime applying to all child savings plans.
No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand. Tax treatment depends on your individual circumstances and tax law may change in future. Stock market investments can go down as well as up and the child could get back less than you have paid in.
Junior Individual Savings accounts – know the facts
In this article Scottish Friendly looks at Junior ISA facts. If you’re uncertain about how to set up a Junior Individual Savings Account for your child – don’t be: the good news is that the process is straightforward and it can be a great way to save or invest money, tax-free.
The Junior ISA is often confused with the Child Trust Fund – but as of 1st November 2011, the CTF was discontinued and replaced by the JISA. If your child already has a CTF they will be unable to hold a JISA at the same time. If you haven’t yet opened a JISA for your child, and are looking for information, take some time to read our guide.
The Basics:
- Eligibility: any child that is a UK resident and who isn’t eligible for a CTF may hold a Junior ISA. Children born on or after the 3rd January, 2011 are eligible for a JISA. Those still under the age of 18 who were born before September 2002 are also eligible.
- Age limit: you can invest on behalf of a child under 16. The JISA is held on behalf of the child, until they reach their 18th birthday. At that point, they may withdraw their money – the money in the account can only be taken out by the child – or allow the JISA to turn into a full adult ISA.
- Save or invest: the JISA, like the adult ISA, can be held in two categories – a ‘Cash’ savings product or a ‘Stocks and Shares’ investment product. A child may hold both types of account, subject to the annual subscription limit. Money within a cash JISA is protected and you’ll get out exactly what you put in (plus any interest due). A Stocks and Shares JISA, like any investment product, involves risk – stock market investments can rise and fall and the child could get back less than you have paid in.
- Tax free wrapper: the interest or returns a JISA generates are free from income or capital gains tax (tax is deducted from UK share dividends). This means the money you invest within a JISA could work hard for your child and not the tax man. Tax treatment depends on individual circumstances and tax law may change in the future.
- Subscription limit: at present, the limit on the amount of money you may save or invest tax free in a JISA each tax year for a child is £3,600. This amount may be split across the Stocks and Shares or Cash JISAs a child holds.
Why a JISA?
A Junior ISA is a way of building up a fund for your child to use at a time when they may need it most. At 18, children may be thinking about university, travelling or becoming more independent. A JISA could give them a head start in whatever direction they choose to go.
Once set up, anyone can contribute to a JISA: friends, grandparents and family. A contribution towards a child’s future could be an ideal birthday or graduation gift and one which will be all the more appreciated when the child turns 18 Sit down with your child in mind and think about what your savings or investment goals might be for their future. A JISA is a long-term plan and could be a useful way of demonstrating good financial practice. It’s never too early to get your child thinking about financial responsibility and, with a Junior Individual Savings Account, they have the option to be involved in planning for their own future when they turn 16.
Scottish Friendly has provided no advice in relation to these plans. If you are in any doubt as to whether a plan is suitable for you, you should contact a financial advisor for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk Advisers may charge for providing such advice and should confirm any cost beforehand.
Family Savings and Investments
If you have a family, or are planning one, it can be hard enough looking after your finances in the present, never mind thinking about the future. The good news is there are plenty of options open to anyone who wants to set up a family savings and investment plan – the real trick is finding a strategy that gets the most out of the money you put in.
A family savings or investment plan could deliver a level of peace of mind and may help deal with any expected and unexpected financial burdens which may occur. The cost of education is set to rise and if your children are thinking about university, having money in place to help pay fees can be very useful. Savings and investment plans are also useful for medical costs, travel, nest eggs for your child, or simply setting up a fund to help you enjoy retirement! You must remember that with any stockmarket related investments, your investments may fall as well as rise and your original investment is not guaranteed.
What are your options?
If you’re specifically thinking about setting up a savings or investment plan for your children, you may have heard of the Junior ISA which offers an opportunity to help save or invest money for your child’s future.
The ‘JISA’ replaces the Child Trust Fund, which was recently discontinued, (if your child has a CTF, you may still contribute money to it). Any child born after 3rd January, 2011, is eligible for a JISA, which works like the adult ISA: it is held on behalf of children under 18 and available as a ‘Cash’ savings account, or as a ‘Stocks and Shares’ investment account. Please remember that stock market investments provide potential growth but also involve risk, your investments may fall as well as rise and your original investment is not guaranteed. Money within a ‘JISA’ is exempt from income and capital gains tax (tax is deducted from UK share dividends). Tax treatment depends on individual circumstances and tax law may change in the future. When your child reaches 18, they may withdraw the money or let the JISA ‘roll over’ into a full adult ISA. An annual limit of £3,600 per tax year is set on the maximum contribution which can be made to a JISA.
Many companies also offer specific family savings or investment accounts which bring different ways to put money away for the future. From deposit savings accounts, to long term investment plans, you’ll find a variety of products to choose from. Some of these plans involve tax protection in addition to any JISAs or ISAs held. Take the time to learn the details of different plans and accounts – the internet is a great tool for research and you’ll find plenty of organisations and comparison websites to mine for information. You may also want to consider speaking to a financial adviser to make sure you select the right strategy. If you are talking to a professional, there may be a charge for any advice given – an adviser should confirm any cost before meeting with you.
Potential future financial success…
Family saving and investments isn’t just about aiming to build future financial security. While it’s important to prepare for the future, getting your family and your children involved in the process of saving and investing is good financial practice and can be valuable in building your potential for future financial success.
No advice has been provided by Scottish Friendly in relation to these plans. If you are in any doubt as to whether a plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand.