Money

Now that the Government has announced final details for its new Junior ISA scheme, what does this mean for grandparents who’d previously put away lump sums and contributed to Child Trust Funds (CTFs)?

What impact, if any, will the new initiative have on their grand-children’s financial future?

David Dawson, Savings Director at www.thechildrensisa.com, explains.
CTFs, a Government savings and investment scheme that started in 2002, was abolished on 2 January. Recently, the Treasury amended the existing ISA guidelines to enable the establishment of Junior ISAs, which provides a more clear and simple way of saving for a child’s financial future.

Planning for the future

Effective from November 1, it is estimated that around six million children are eligible, with a further 800,000 becoming eligible each year. The Government has raised the limit of annual investment into the Junior ISA to £3,600 from £3,000. A move that grandparents will welcome as it means, potentially, they could help their grandchildren save an additional £19,000.

The benefits

With the main benefit of the new saving scheme being that it is tax free, paying-in up to £3600 per tax year in a Junior ISA could achieve a pot of almost £115,000 by the time the child is 18 (based on growth of 5% net per annum). This enormous figure will be a hefty sum that grown-up grand children are sure to appreciate given the rising cost of higher education and the difficulty of homeownership.

What it all means

Unlike CTFs, there is no Government contribution to Junior ISAs and each child is limited to one cash ISA and stocks and shares ISA. Any UK resident child under 18, who is not eligible for a CTF, is eligible for a Children’s ISA. This includes children who were born before the CTF eligibility in September 2002. A child born between September 1, 2002 and January 2, 2011 was eligible for the CTF, at this time, if a child has a CTF they cannot have a Junior ISA.

Making contributions

Any parent or guardian can open an account and anyone can make contributions to it. The management of the ISA passes to the child when they reach 16 and they can only access funds when they turn 18 when it becomes an adult ISA.

Who will provide these

At that time, it is anticipated that any responsible ISA provider will advise on alternative saving options available to encourage grandchildren to continue saving.

Soon, many high street banks and building societies will market products. www.thechildrensisa.com in particular is offering Cautious, Balanced and Adventurous options which will include low cost, actively managed, ethical and sharia funds, which can be opened with a minimum investment of £10.

The ISA is operated by Avalon Investment Services who administer £300m invested primarily through Independent Financial Advisers.

Building a future

Grandparents can now confidently look to start saving for their grand-children’s future when it comes to gifting, instead of, perhaps, previously giving them lump sums over their lifetime.