From the 6th April, parents will be able to transfer money held in CTFís into more attractive junior ISA accounts. However, there is a fear that a large amount of people will not benefit from the changing regulations because they are simply not informed about it.
Research done by Scottish Friendly has revealed that nearly 60% of people with children within the age bracket of four to eleven are ignorant of the alteration. That is the age bracket whereby children qualify for a child trust fund (CTF).
Before the enforced change in April, children born on the 3 January 2011 or subsequent to that and also before the date of 1 September 2001 were able to access a Junior Isa account. This meant that there were over six million children who had only tax-free CTFís as an option.
The benefits of having a Junior Isa account is that the holder has access to more investment options and more competitive charges. A spokesperson for Candid Financial Advice stated: ìIf your child has a CTF invested in shares or funds, you are very likely to be better off transferring into a Junior Isa, primarily because you should be able to save money.î
ìThe vast majority of shares CTFs- for example, those offered by Family Investments and the Childrenís Mutual- charge 1.5% a year. If you were to transfer to the Fidelity platform via discount broker Cavendish Online, for example, this would reduce your charges to 0.25% plus underlying fund costs. Opt for a UK tracker fund at 0.07% and your total annual cost will be 0.32%- almost a fifth of a typical CTFs.î
The spokesman went on to say: ìThere will also be a much wider investment choice via a Junior Isa held on an investment platform, with usually about 1,000 or more funds to choose from.î
Another positive for transferring is that for many CTFís there is no exit fee. The most common CTFs are stakeholder ones which are unable to charge exit payments and this is applicable for cash CTFís as well. However, there is a qualification to those who hold a non-stakeholder CTF as many of these accounts have exit, initial and annual fees that could amount to a significant price.
Furthermore, there are some notable similarities between the CTFs and Junior Isa accounts. The saver is limited to investing £4000 per annum in cash, shares and stocks for this current tax year. In the next tax year, which witnesses the change of legislation, the limit will rise to £4080.
Calum Bennie who works at Scottish Friendly commented on the fear that not enough parents are informed about the upcoming modification. He asserted: ìThere is a very real danger that if more isnít done to let people know about the change in rules, parents may just end up leaving their money in a CTF where interest rates can be as little as 1.05 per cent.î
He went on to say: ìIt took a considerable amount of persuading the government to make these changes, so itís important these hard won gains arenít forgotten about.î