Should I stop paying money into my offspring’s child trust funds? I am starting to have doubts about this method of saving.
CTFs are back in the spotlight after the Treasury announced, finally, that it will allow parents to transfer these obsolete savings accounts into Junior Isas. To most parents, these must look like very similar products with the same savings limits and tax breaks. But the newer Jisas offer a far greater fund choice, lower charges and more competitive savings rates so switching should be a no-brainer.
The problem is that the six million parents in possession of a CTF will have to wait until April 2015 before they can, in effect, upgrade it to a Jisa.
This seems a ridiculous length of time, particularly given the overwhelming support for the initiative. In total, parents will have had to wait four years to move their CTF into a Jisa. Given that difference in charges and savings rates, this could have a marked effect on overall returns.
The delay has made me reconsider whether either product is fit for purpose.
When my children were born, I invested each £250 voucher into F&C’s stakeholder product and set up a monthly direct debit to add to this fund. But with an annual charge of 1.5 per cent – for what is essentially a tracker fund – I wonder whether I am building a nest egg for my kids or for F&C shareholders.
To be fair to F&C, this is the standard charge on these products. But as I could pay just 0.3 per cent for the same product in a Jisa, I do not feel inclined to carry on paying over the odds for yet another year.
But stopping these extra contributions altogether will hardly help my kids in years to come. One can only get out of an investment what one puts in to start with. People like me can gripe about investment fees, pension charges and CTF costs but if we do not invest at all, we will be worse off in the long run.
So I should invest elsewhere while waiting for the Jisa. But once I start thinking along these lines, I wonder if this is a better option altogether – by either using my own Isa allowance or investing through a bare trust. Both can be equally tax-efficient and have the added benefit that parents can retain control of the investment beyond the child’s 18th birthday.
Getting parents to save for their kids’ future is a laudable aim but have either CTFs or Jisas really encouraged more parents to do this? I suspect people like me have been seduced by convenience and are now paying over the odds as a result.
In around seven years’ time, the first CTFs will start to mature. I would be surprised if many make a sizeable dent in the birthday celebrations and gap year costs that they will inevitably be used to fund.
Emma Simon is a freelance journalist