Raising junior

Junior Isas launched to the market this week, replacing child trust funds as the tax-free investment vehicle for parents saving for their children.

Unlike CTFs, which were closed in May 2010 to children born on or after January 3, 2011, the Government will not make any payments into the new accounts.

Parents can choose a cash and an investment Jisa, with a total annual limit of £3,600.

All children born on or after January 3, 2011 are eligible for a Jisa. If a child born before this date has a CTF, they cannot open a Jisa. Children born before CTFs were launched in September 2002 who are still under 18 years of age are also eligible for a Jisa.

Jisas will become Isas when children reach 18 and the holder of the account will be free to withdraw the money. CTFs cannot be transferred into a Jisa.

The companies offering Jisas at launch include JP Morgan Asset Management, Fundsmith, F&C Investment Management, Witan, Fidelity World-wide Investment, Hargreaves Lansdown, Share Centre, Alliance Trust Savings and Bestinvest.

Jisas are available on Fidelity FundsNetwork and Transact while Cofunds will make them available to execution-only clients on November 7. Nucleus says it will introduce them in the first half of 2012.

Skandia says the firm is currently focused on retail distribution review platform developments, after which it will consider further enhance-ments, which may include introducing Jisas.

Informed Choice managing director Martin Bamford believes Jisas will have limited investment appeal. He says: “Unlike the child trust fund, they do not come with the incentive of a contribution from the Government.

“This means it will require a motivated parent to take specific action to open an account and make investment decisions.

“One of the biggest problems with the Jisa, something it shares with CTFs, is that children will have full access to the money on their 18th birthday. Most of the parents we speak to do not want to create “a motorbike fund” for their offspring, as they do not know how responsible the child will be when they get access to the money.”

Bamford feels Jisas are unlikely to offer a wide fund choice or be competitively priced. He says: “As the annual Jisa allowance is £3,600, the amount of money going into these accounts is likely to be small compared to a pension or adult Isa portfolio.

“This means providers have less incentive to offer access to a wide range of funds or offer these funds with competitive charges. The margins on Jisa business are likely to be quite small for providers.

“Most parents will not take the Jisa route but will go for the sorts of investments they are accustomed to and then unofficially designate them to the children.”

Yellowtail Financial Planning managing director Dennis Hall says the Isa brand is one of the most trusted in the investment market-place, so consumers are likely to view Jisas positively.

He says: “Product providers will find the marketing of junior Isas somewhat easier than the marketing of child trust funds. The name sits easier in people’s minds, whereas child trust funds have an air of complexity about them simply from the name.”

Philippa Gee Wealth Management managing director Philippa Gee says: “The concept of the Jisa is spot on but where it falls down is that those with a child trust fund cannot take out one of the new accounts. By my reckoning, that rules out anyone between the age of nine months and nine years. This certainly dilutes the interest and impact the Jisa will have.”

Gee is concerned about the future for investors with CTFs. She says: “There seems to be a better choice of investment firms looking to offer Jisas than we ever had for CTFs. Of those with the CTF model, there will no strong motivation to keep improving the offering, to keep charges as low as possible and to provide a decent fund range.”

She believes the solution is to allow transfers from CTFs to Jisas, saying: “This would make sense and should not be too hard to manage due to Isas allowing transfers, providing it is done for the right reasons, otherwise, those entitled to a Jisa could end up with a cheaper, more attractive savings plan compared with those stuck with a CTF, which is hardly fair.”

Bestinvest senior investment adviser Adrian Lowcock says: “It would be best to consolidate CTFs and Jisas and make the landscape much clearer, providing parents with one solution rather than confusion as to what they can and cannot do.”

Lowcock adds that developing mechanisms to allow CTFs and junior Isas to merge would take time to deliver due to the infrastructure costs involved.