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After years of campaigning by disgruntled parents and grandparents, it looks highly likely that Child Trust Funds (CTFs) will finally be eligible to transfer into Junior ISAs (JISAs) on April 6, 2015.
The deregulation bill is currently being finalised, with confirmation expected in early January. This is the conclusion to a long battle for children locked in CTFs, considered an inferior financial product because of the complicated structure and restricted investment options.
An e-petition launched in November 2011, stated that “children born between 2002 and 2011, are about to be subjected to a form of discrimination which affects their human rights: they will be the only British citizens not allowed to invest in an ISA. Instead they will be tied to the Child Trust Fund already opened on their behalf.
“These have not performed well in the past, and are likely to perform even more badly now new Trust Funds can no longer be opened. This gives negative messages about saving to the millions of parents and grandparents who, in many cases, will have struggled to put this money aside for a child’s future.”
While the CTF was restricted to just 14 products, many of which failed to offer their beneficiary a real post-inflation rate of return, a JISA investor can chose between a wide selection of stocks, funds and ETFs, as well as a cash products provided by banks and building societies.
One benefit of CTFs was that the Government gifted all children with £250 to open the account, but a huge proportion – 80% – then failed to top up this amount, or even cash in the cheque. This meant that HMRC invested the money into low-cost passive funds on behalf of the child. Unless these accounts are claimed, these Revenue opened CTFs will create a legacy book expected to run until the last fund matures in 2029.
What Should Child Trust Fund Holders Do Now?
There are six and a half million CTFs eligible to transfer into JISAs on April 6. Even if just 5% of this number choose to take action, it will involve significant administration.
Being prepared will help smooth the process and ensure you do not miss the deadline – it is expected CTF holders will be given a 30 day window from the date they receive their transfer form to take action.
First, line up the provider you wish to handle your JISA. Do you want to invest in the stock market? Or open a cash account? Have you already activated a JISA on the child’s behalf? Make sure you have these details.
You also need to check the CTF account details. Who opened the CTF on the child’s behalf? Only this parent or guardian can sign off the transfer.
Although you may be intent on transferring your CTF to a JISA, you should still top up your CTF until the transfer date to make the most of your savings. The tax-free allowance for both JISAs and CTFs for the tax year 2014/15 is £4,000 and the tax-free allowance for 2015/16 is £4,080. If you wait until the transfer date to make contributions, you can only take advantage of one of these allowances.
