The chancellor's announcement of a consultation to allow Child Trust Funds (CTFs) to be transferred to Junior Individual Savings Accounts (Jisas) is a victory for common sense.
Since the Jisa was launched in November 2011, CTFs have suffered from limited choice and higher charges on investments, with a number of CTF providers raising fees in recent months. Investors Chronicle has been lobbying for a merger of the two schemes to benefit more than six million children stuck in inferior and expensive CTF products.
Chelsea Financial Services calculates that over the course of 18 years, the initial charge on investment CTFs alone could result in a pot of money worth £7,500 less than for a child born a few months later who had a Jisa. The figure assumes the full £3,600 CTF annual allowance is invested and increased in line with inflation each year, an initial charge of 5 per cent on a CTF, but 0 per cent on a Jisa, 4 per cent annual growth and 3 per cent dividends reinvested.
Children born between 1 September 2002 and 2 January 2011 will benefit from the consolidation of the two schemes.
Child Trust Fund facts:
As at April 2012, there were 6.14m children with CTF accounts from 73 CTF providers with a market value of £4.9bn, an average of £780 per account. Just shy of 1.3 million CTFs (21 per cent) have additional contributions by family and friends.
Meanwhile, plans set out the day before the Budget revealed a new Tax-Free Childcare Scheme to support working families with the costs of childcare, worth up to £1,200 per child per year. The new system will be introduced in autumn 2015 and children under five will be eligible, with the scheme building up over time to include children under 12. Parents earning up to £150,000 will be eligible for the scheme. They will receive 20 per cent - equivalent to the basic rate of tax - of their yearly childcare costs up to £6,000 per child.
The current system of Employer Supported Childcare offered by 5 per cent of employers will continue for current members if they want to stay in it and will continue to be open to new joiners until the Tax-Free Childcare scheme is available. Parents with children under five will not be able to receive both.
