Junior ISAs - due Nov 2011

A new tax-free savings account for children, known as the JUNIOR ISA, will be available from 1 November, the government has confirmed.

The Individual Savings Account (Isa) will have an annual contribution limit of up to £3,000 in cash and shares.

The government said last autumn that it was considering the investment scheme, and has now published draft regulations for consultation.

Junior Isas will replace Child Trust Funds, which have been phased out.

However, I believe the government have missed an opportunity to simplify things here, as children who are eligible for an old child trust fund will not be eligible for a Junior ISA. This means children who have a CTF (and the parents may not even have chosen it, as if they didn't submit the voucher in time, the government just select a provider) will be limited to £1,200 a year instead of the £3,000 limit of a junior ISA. And even without the difference in limits, this is just another piece of admin needed before opening an account.
See my previous blog post for details of which children are eligible for CTFs
http://greenfinancial.blogspot.com/2011/02/time-flies-saving-for-children.html
but generally speaking, it is children who were born in 2011 or later or before 1 September 2002.



Savings or Investment

As mentioned above, investments in Child Trust Funds (CTFs) have a £1,200 annual limit, but the new Junior Isas will have a £3,000 limit. This will be available whether through regular monthly savings, a lump sum, or a combination of both.

But, unlike CTFs, there will be no government contributions into each child's savings pot.

Junior Isas will be offered by many of the providers that currently offer Isas to adults.

"Junior Isas are a great example of a simple, clear and jargon-free financial product that allows families to save and invest for their child's future," said Mark Hoban, financial secretary to the Treasury.

Fidelity International has calculated that if a parent invested the full allowance of £3,000 each year they could accumulate savings of £107,923 by the time their child reached 18, based on growth of 5% a year.

So you can see why it seems unfair that if your child was born in the time that CTFs were in existence, the total pot possible to accumulate will be much reduced.


Timeframe

Money invested in Junior Isas will be "locked in" until the child is 18, and the Isa will then, by default, become an adult one.

The Treasury has estimated that six million children will be eligible for Junior Isas at launch, with 800,000 more eligible each year after that.

Consultation on the government's regulations will continue until May, with the launch date of the product due in November 2011