Wednesday 28th September 2016

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Changes to the Child Trust Fund – what you need to know

 

You will probably have heard about the introduction of the new Junior ISA, a tax-favoured children’s savings product that will be launching over the next few months. But what, if anything, does this mean for Child Trust Fund holders?

  1. You cannot open a Junior ISA for a child with a CTF

Essentially, Junior ISA is a replacement for the Child Trust Fund, which was withdrawn by the Coalition Government in January 2011 following a reduction in the value of Government vouchers from August 2010. Because of this, a child cannot have both a CTF and a Junior ISA. Broadly speaking, this means UK resident children born before 1 September 2002 and after 3 January 2011 will qualify for a Junior ISA, while those born between these dates will not. The exception to this is UK resident children of ‘CTF age’ who do not have an account because they were not UK resident at the time.

       2. Children with CTFs are not necessarily being ‘disadvantaged’

There has been considerable press coverage recently regarding the perceived ‘disadvantage’ to children with CTFs as a result of the launch of the new scheme. The view is that providers will ignore CTF accounts as they seek to generate new Junior ISA business. This argument fails to account for the fact that CTF holders have already had the considerable advantage of up to £1,000 in Government contributions, and also that CTF holders who are unhappy with their current provider will retain the ability to switch to another CTF provider. While some providers may cease to focus on CTFs, this will arguably increase competition for transfer business, which could actually lead to better deals for CTF holders.

       3. The annual investment limit will increase from 1 November

Junior ISA investors will be permitted to invest up to £3,600 a year in the new product. The good news for CTF investors is that their annual investment limit will increase from £1,200 to £3,600 from 1 November. This will also rise in line with CPI inflation from 6 April 2013.

     

 4. CTFs and Junior ISAs may well end up the same at some point

Just as the old Personal Equity Plans (PEPs) were eventually rolled into the Individual Savings Account (ISA) structure, so the same could eventually happen with CTFs and Junior ISAs. The first CTFs are not set to mature for another nine years (paradoxically, there will be Junior ISAs maturing sooner, as they can be opened for older children), so there is plenty of time to iron out inequalities such as the automatic rollover of a Junior ISA into an adult ISA, while at present the CTF rules provide for it to be paid out to the child at age 18.

       5. If you have a CTF voucher that you have not yet invested, you will not miss out.

You have 12 months from when you receive the voucher to open a Child Trust Fund with it. As the voucher is issued at the point at which a Child Benefit claim is made, rather than at birth, it is possible there are still some of the higher-value vouchers (£250, or £500 for low-income families) out there, though these will be getting close to the 12-month cut-off after which the Government chooses a stakeholder CTF for you from a list of providers who accept these ‘Revenue allocated accounts’.

Even if you have one of the lower-value (£50 or £100) vouchers issued for babies born between August 2010 and the start of January 2011, it is still worth opening the Child Trust Fund you want rather than waiting for the Government to decide for you. Although the voucher is smaller than those previously on offer, it is still better than nothing! While some CTF providers stopped taking new subscriptions when the value of the voucher was reduced, others, including F&C, are still welcoming Child Trust Fund business both from new parents and from those transferring CTFs from elsewhere.