The Budget report provided hope for Child Trust Fund (CTF) savers locked into poor-paying accounts as the Government confirmed it would launch a consultation on transferring savings from CTFs to Junior ISAs.
The Budget report said the Government “wants to support parents by ensuring that there continues to be a clear and simple way to save for all children”.
The move follows pressure to relax the rules on the tax-free accounts.
Child Trust Funds (CTFs) were introduced by Labour to promote saving for children and were available to children born between 1 September 2002 and 2 January 2011. The Government initially provided a starting voucher of £250 which was later reduced to £50 as the accounts were phased out for new savers.
Junior Isas were introduced in 2011 and allow up to £3,600 (for the 2012-13 tax year, rising to £3,720 in 2013-14) per child to be saved tax-free each year. The child then gains control of the money on their 18th birthday.
Parents who hold a CTF are currently unable to start a Junior ISA for the same child, or transfer the money into one. This means many are now stuck in accounts that providers have superseded with better-paying Junior Isas.
Danny Cox, head of financial planning at Hargreaves Lansdown, says the consultation is great news.
“The days of the Child Trust Fund have been numbered since the launch of the Junior ISA and we have already seen examples of where children with CTFs have been disadvantaged compared to those with Junior ISA,” he said, “Common sense has broken out at last.
“Child trust funds have been in terminal decline since 2011, seeing millions trapped in expensive products or suffering lower interest rates than their Junior ISA counterparts. This consultation will pave the way for a significant improvement in choice and outcomes for over 6 million children and ultimately lead to a full merger.”
By Emma Lunn