Child Trust Funds and Junior ISAs (JISAs): what they are, why they matter and why you may not be getting the best deal.
Neil Lovatt, Scottish Friendly’s sales and marketing director, calls on all Child Trust Funds (CTF) to be transferred to JISAs.
Saving for their children will always be a priority for parents. While many have taken advantage of Child Trust Funds (CTFs), others have invested in a Junior Isa since they replaced the CTF in 2011.
Both wrappers are almost identical. Both ensure that any income or capital gains rolls up tax free and allow anyone to save up to £3,720 a year for each child. However they operate as two distinct tax regimes. All children aged under 18 who did not qualify for a CTF can now have a Jisa. However, unlike a CTF, there is no government contribution to top up the fund.
While the government is consulting on the proposal that money locked in ‘zombie’ CTF accounts can be transferred over to Jisas, under current plans consumers will have to request this to happen themselves.
Instead, Scottish Friendly would like to see it made compulsory for all CTFs to be bulk transferred to Jisas. In our view this gives consumers the best deal and will eventually happen anyway.
The current favoured proposal of individual transfers is wrong; it is expensive, unnecessary, disruptive and potentially destabilising to consumers and providers alike. Scottish Friendly recommends a full and comprehensive transfer of all existing CTFs to Jisas for three main reasons:
The transfer of CTFs to Jisas on a voluntary basis is clearly a one-way process. To optimise competition and choice the government should free all customers and providers and this can be achieved by creating a single (Jisa) market for child savings.
A one-way voluntary process would eventually lead to the bulk transfer/merger of existing CTFs to Jisas anyway making it an expensive and unnecessary stepping stone to the preferred solution.
Scottish Friendly’s policy of a merger of accounts will enable and encourage all providers (including existing CTF providers, which will now be Jisa providers) to compete for all business including transfers from other providers as well as new child savings.
We remain hopeful about opening up competition and creating more choice within the CTF and Jisa markets for the consumer and believe our proposals will gain increasing support. We are certain the government will recognise our solution will ultimately be of most benefit to the children for whom investments were taken out in the first place.
Stock market investments can go down as well as up and the child could get back less than you have paid in.
Tax treatment depends on individual circumstances and tax law may change in the future.
Tax-free means the fund the child’s plan invests in grows free of income and capital gains tax (other than tax on dividends from UK shares).