Junior ISA- a new way to invest for children
With university tuition fees in England set to rise to £9,000 a year from September 2012, parents and grandparents may be increasingly concerned about how they can help the younger generation avoid a millstone of debt as they begin their adult lives.
However, the rising cost of living, coupled with the looming withdrawal of Child Benefit from families where one parent is a higher-rate taxpayer, means spare cash may be hard to come by.
F&C is committed through its range of savings schemes to helping parents and grandparents build a savings pot for children that is both affordable and has the potential to grow, although as these plans mainly invest in the stockmarket, their value can fall as well as rise in the short term. F&C’s Stakeholder Child Trust Fund (CTF) is available from just £10 a month, while its Children’s Investment Plan and Shares CTF accept contributions from £25 a month.
Child Trust Funds, which benefited from the kick-start of a Government voucher, were phased out by the Coalition Government, with no new accounts available for children born after the start of 2011. However, there is a new product on the horizon: the Junior ISA, which will be available to children born before the introduction of the CTF, as well as to those born since its withdrawal.
F&C will launch a Junior ISA product in 2012, which will offer access to the same broad range of trusts, allowing families and friends to take advantage of the long-term growth potential of such investments.
Like an adult ISA, the Junior ISA (JISA) will have an annual subscription limit and will allow investments to grow free of income tax (with the exception of the non-refundable 20% tax on dividends) and capital gains tax.
The Junior ISA allowance is £3,600 a year, which can be split in any proportion between cash and stocks and shares. The Child Trust Fund annual investment limit has been raised from £1,200 to £3,600 to match the Junior ISA limit, and the allowance for both will be raised in line with inflation from 6 April 2013.
Like a Child Trust Fund, the money will be locked in until the child reaches 18, at which point it can be rolled into an adult ISA. Parents may find this preferable to paying out all the money in the account to the child at age 18, which would have been the case with the CTF.
Again like an adult ISA, it is expected that there will be cash and stocks & shares options, although unlike an ISA, it is likely the whole annual allowance may be invested in cash if the parents so choose. While an ISA can be taken out with a new provider each year, it is expected that a JISA will be taken out with one provider at the outset, and, like a CTF, can only be transferred in its entirety to a new provider.
One of the benefits of saving regularly for children is that, if you start when they are young, you have a very long-term investment horizon: often longer than for investments you might make for yourself. This makes investing in riskier assets (such as shares, property or private equity) particularly suitable for young children, as long as you are happy with the idea that the value of investments can go down as well as up, because a long timescale means there is more time to make up for short-term dips in value.
However, you may wish to move into less risky assets in the last years before the investment matures, to avoid adverse market movements wiping out your gains. For the same reason, if you are investing for an older child where the time horizon is shorter, you will need to weigh more carefully the greater risk and potential reward of equity investing.
Keep up to date with the latest on F&C’s Junior ISA plans by registering your details at www.fandc.com/junior-isa
