A junior ISA allowing parents to save for their children’s futures is in the pipeline.
Plans for a simple children’s saving account are being finalised.
A tax free savings account for children will be introduced in Autumn next year under proposed government plans, following the decision to scrap Child Trust Funds (CTFs).
Financial Secretary to the Treasury, Mark Hoban said money deposited in the junior ISA account will be owned by the child and locked in until adulthood. All the returns will be tax free, although annual contributions will be capped, and, in contrast to CTFs, no contributions will be paid in by the government.
Mr Hoban said: “I am committed to ensuring that all parents can save for their children’s future in a simple and straightforward account. The introduction of this new account means that we can still offer people a clear way of saving for their children, while saving the half billion pounds a year that we currently spend on Child Trust Funds”.
George Ladds, head of investments and pensions research at Fair Investment Company, said: “Launching a Junior ISA is a good move. Not only will it help to teach children the importance of saving from an early age, and encourage parents and other family members to put money away for their children, but the fact that it is an ISA means they will already be familiar with the concept of ISA investment when they go on to have a standard ISA of their own”.
Michelle Slade, spokesperson for Moneyfacts, said that by the time a child reaches the age of 18 they could end up with a “sizable tax free nest egg, which they should hopefully be able to transfer to an adult ISA”. However, she added that the new account will only help parents who are willing to save for their children – the CTF replacement account will do little to help those families who cannot afford to put money aside.
The government is currently finalising the structure of the account to make it available for Autumn 2011.