Government Allows CTF Transfer to Junior ISA

Six million children with investments in child trust funds (CTFs) will now be able to transfer funds into junior ISAs, ending the "two tier savings system"

Emma Wall 23 December, 2013 | 3:29PM
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The Government has finally ended the two tier children’s savings system. Child trust funds (CTFs) were launched in 2005 but scrapped six years later when a more competitive Junior ISA (JISA) was introduced, which offered children and their parents much more investment choice within a system that much more closely mirrors the adult tax-efficient ISA.

Any child born before September 2002 who did not have a CTF was eligible for a JISA, as are all children born on or after January 3, 2011. For both CTFs and JISAs the annual tax-free savings allowance is £3,600. The key differences between JISAs and the former CTF scheme is that the Government does not contribute to the former, but many more asset managers offer JISA eligible funds, meaning parents have a much greater choice for their children.

The CTF has been widely criticised, and parent groups had put pressure on the Government to allow CTF funds to be transferred into JISAs for nearly two years. The Government announced plans to look into the children’s savings market in this year’s Budget.

Ian Sayers, of the Association of Investment Companies said that this long-awaited announcement was a boost for consumer choice and ended a two tier system for children’s saving.

"Many CTF investors have found themselves ‘locked’ into a product because there are few alternatives but now they will have the freedom to invest in a far wider range of vehicles," he said.

According to the Association of Investment Companies if you had invested the current annual ISA limit of £3,720 into the average investment company every year for the last 18 years you would now have £170,766. 

SavingsChampion.co.uk said that the lack of competition in the CTF market mean that children were being condemned to poor returns. 

“Competition drives the market, therefore the issue with closing off the CTF market, is that competition dries up and interest rates start to dwindle.  Although there are very few providers actually offering CTFs, the simple truth is that better rates can be found with Junior ISAs; in some cases by as much as double," Anna Bowes of Savings Champion said.

"It’s a move that has been a long time coming. For a Government that talked about needing simple savings vehicles, by replacing the CTF with a JISA and not allowing the two to be interchangeable, it added complexity which quite frankly can prompt inertia."

Ms Bowes did say that as the change was not happening until 2015 parents and guardians should check the interest rate they are receiving now, and move if the rate can be improved.

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Emma Wall  is former Senior International Editor for Morningstar