DIY Investor Magazine
/
March 2014
12
JUNIOR ISA OFFERS
According to the Institute for Fiscal Studies, those born
in the 60s and 70s are the first generation since the
Second World War to be poorer than their parents.
Writes
Steve Haysom
Those leaving further education in 2014 face the
prospect of student debt in excess of £50,000, fierce
competition for employment, wage stagnation and
‘gazumping’ has returned to London’s super-heated
housing market. According to the Office for National
Statistics there were over 800,000 births in the UK last
year, an increase in the birth rate of 18% in a decade
and it seems that the ‘Bank of Mum and Dad’ is going
to have to work harder than ever in order to be able to
help out in the future.
It is generally accepted that one of the most important
factors in the achievement of a successful outcome to
an investment strategy is to start early and to continue
investing for a long time and it is now more important
than ever that parents pull out all the stops to give
their children a financial head start in life.
A whole range of savings and investment plans exist
and since November 2011 when the Junior ISA replaced
Child Trust Funds, they have been able to support their
loved ones in a tax-efficient way.
From 1st July parents can save tax-free for their
children up to the age of 18 through a Junior ISA up
to an annual allowance of £4000– with the current
UK birth rate at 1.98 per woman that could see the
average family put £7920 to work without George
getting a look in.
JUNIOR ISA
Stocks and shares Junior ISAs work like a normal
stocks and shares ISA which can be more risky than
the cash alternative and will usually attract annual
management and platform charges. Junior ISAs are a
long term investment vehicle and it is very important
that you select a provider that offers you the pricing
structure and investment choice appropriate to your
requirements. Make sure too that you have the ability
to access the account in a way that suits you in order to
make investments or monitor performance. Making the
wrong choice at the outset can incur punitive transfer
charges if you decide to switch horses later on. A Junior
ISA can invest in a very large range of equities, funds
and investment trusts and it is important that you do
your homework in order to achieve a balanced portfolio
of investments that will perform according to the
chosen time-horizon which may differ from your own
investment portfolio.
Then do an ‘apples and apples’ comparison of a couple
of providers on administration fees, fund and share
dealing costs, regular investing charges and any other
fees. As we adapt to the post - RDR investment world,
some providers have no admin fees but still take a
cut of commission from fund annual management
charges, others offer ‘clean’ funds that are free of
this commission but charge for buying and selling
investments; most brokers have now announced their
new pricing models. If you plan to regularly invest for
your child make sure the cost of doing this is as low
as possible, by either finding a platform that offers
discounted regular monthly investment – some as low
as £1.50 - or use one that offers free fund dealing.
The predecessor to the Junior ISA, the Child Trust Fund
(CTF), gifted £250 at birth to all babies born on or after
1st September 2002 with a similar lump sum at the
age of seven. Parents could top this up by up to £3,720
tax-free each year, and could continue to do so when
the Junior ISA replaced it in 2011. No withdrawals can
be made from the account until the child reaches 18
and when the Junior ISA came along the government
withdrew its support for CTFs and no transfers were
allowed into Junior ISAs.
However, CTF holders were faced with a dwindling
choice of investment options as fund providers lost
interest in the defunct product and in a volte face the
government will allow transfers into Junior ISA from a
currently provisional date of April 2015 stimulus.
TAX EFFICIENCY TO THE
BANK OF MUM & DAD
