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.