The Government has confirmed plans to introduce a tax free savings account to replace Child Trust funds.
The junior Isa is set to have similar restriction to CTF’s but will not have the government contributions.
The Government says it will work closely with stakeholders to formulate the structure of the accounts, which are set to be available by the autumn of 2011.
Funds will be placed in an account which will remain locked until the child reaches adulthood. As with traditional Isas, annual contributions will be capped.
In May 2010, the Government announced it would reduce and then stop CTFs as part of plans to save £6.2bn in 2010-11. Before this parents received a minimum £250 voucher for newborns, which they had access to from the age of 18. A further payment was made at the age of seven.
These payments were reduced in August and entirely from January 2011. This will save the Government £320m this year and £500m in future years.
Treasury financial secretary Mark Hoban says: “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”.
TISA head of member services Carol Knight says: “We fully support this announcement. Following the decision that children born after the end of this year will not qualify for a Child Trust Fund there has been a real need for a scheme that is attractive to the consumer, is simple, provides choice, flexibility and variety and that is built on a brand they can trust.
“There is an increasing awareness of the need to take personal responsibility for the future whether it be retirement, higher education or housing. Many parents even now are making financial sacrifices to help children through university or onto the housing ladder so this new savings scheme will play an essential role by providing a vehicle which the public feels comfortable with and will help families make provision for the future.”