As Junior ISAs settle into their third year and ahead of the 2014 Budget, advisers tell Rebecca Jones why they believe there are better options for savers looking to provide a nest egg for a child...
The concept of saving for children has been thrust into the spotlight in recent years thanks to the launch of child trust funds (CTFs) in 2005 and their subsequent replacement by Junior ISAs (JISAs) two years ago in November 2011.
However, these vehicles have failed to excite parents’ imaginations. Many of the six million CTFs automatically opened for qualifying children lay dormant, containing no more than the government’s initial £250 gift, while the uptake of JISAs has been weaker than expected, with just over 360,000 accounts opened to date.
Thus, it would seem that these accounts are not the default choice for parents wishing to save for their children. They also do not seem to be the natural choice for financial advisers, most of whom have a broader array of options to offer parents when it comes to growing a nest egg for their children.
How to advise clients saving for children
JISAs and CTFs
One of the least attractive things about JISAs is the lack of accounts to choose from. According to comparison site Moneyfacts’ Rachel Springall, one of the main reasons for this is the current ban on transferring CTFs to JISAs, which means that major banks “are not really vying for business” in the JISA arena.
Springall believes this will change next year when the government is expected to allow transfers following its recent consultation. For now, however, cash JISAs are not particularly compelling.
Between 2012 and 2013, stocks and shares JISAs proved more popular than their adult equivalents, accounting for 31% of all new accounts opened, compared to 20% in the adult market. This, argues Phillip Stevenson, director of ARK Financial Planning, makes perfect sense.
“Parents will invariably look towards cash deposit accounts until I explain to them that it is a nonsense doing that. People in that situation often do not realise that they naturally have what you need for investing: time,” he explains.
Investing is almost always the right choice for parents with more than five years to save for their children, yet despite their tax free status, a stocks and shares JISA may still not be the right choice.
“The big concern with CTFs and JISAs is that the child has absolute right to the money at the age of 18. Now, I don’t know what you were like at 18, but I know what I was like and no-one would have given me 50p if they had any sense,” explains Simon Webster, managing director of advisory firm Facts & Figures.
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