Scottish Friendly aiming to fill the Child Trust Fund gap

Scottish Friendly has criticised the government's plans for child savings as it launches a new range of accounts aimed at families.

The four tax-efficient Scottish Friendly products hitting the market today include child savings plans, designed to help fill the gap left by the demise of child trust funds (CTFs).

The funds - under which the government paid 250 to all children born on or after 1 September 2002 - were scrapped by the coalition last year and children born after 2 January this year were ineligible for them. Parents and other relatives can still contribute up to 1,200 a year to those already open, but many providers have closed their CTF products.

They are to be replaced in November by junior individual savings accounts (Jisas), into which parents and other family members will be able to save up to 3,000 a year, tax-free. The money will be locked in until the child turns 18, at which point it can become an adult Isa. About six million children will qualify for Jisas when they launch, with about 800,000 becoming eligible each subsequent year.

Children with CTFs will not be eligible for Jisas and transfers between the two will not be allowed, leaving millions trapped in accounts no longer offering competitive returns.

Neil Lovatt, sales and marketing director at Scottish Friendly, branded Jisas a "sadly wasted opportunity" - boasting none of the biggest advantages of CTFs but possessing both its biggest failings.

He said: "CTFs started the ball rolling on child saving in a big way, but it will stall with Jisas due to political posturing and political correctness.

"That means it's up to the industry to innovate and find other ways of encouraging child savings that is based on a robust understanding of parents' motivations and fears and not on some shallow, politically correct analysis."

The Glasgow-based mutual's new products - see www.scottishfriendly.co.uk - are tax-exempt savings plans, where the proceeds are free of income and capital gains tax, provided the money is invested for at least ten years.

Between 15 and 25 can be deposited each month and savers can access their capital when they need it. The new range includes the My Kid's Flexible Plan, aimed at parents investing for their children but wanting full control over the money. Similarly, the Child Flexible Plan is available for any adult wanting to put money aside for a child, with the product held in the child's name.

There's also a Family Flexible Plan, in which family members can each invest their annual tax-free allowances, and the Tax-Free Flexible Plan, for people investing for themselves.Contributions to all four plans are invested in the Scottish Friendly UK Tracker Fund, which has an annual management charge of 1.5 per cent a year.

Lovatt accused the government of failing to learn from the biggest parental objection to CTFs: that the investment was turned over to the child at 18 for them to do with as they wish.

He said: "We know from customer research that lack of access to the plan proceeds before 18 and no parental controls were big problems for many parents eager to invest for their kids. This is why we've launched this new suite of flexible plans providing low-cost long-term investment opportunities with parental controls and access."