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Saturday, March 28, 2015

Parents will be able to switch dormant child trust funds to more competitive Junior Isa


Millions of parents have been told that they can transfer money held in poorly performing child trust funds (CTFs), which were scrapped in 2011, into a more competitive Junior Isa from 6 April.
However, until yesterday the Treasury had not been able to give CTF providers the necessary guidance to allow transfers because it had not yet rubber-stamped the appropriate legislation.
The Deregulation Bill which contains the finer details, became the Deregulation Act before transfers from CTFs to Junior Isas will be allowed. Danny Cox, a chartered financial planner at the independent adviser Hargreaves Lansdown, said: "It's been a very close call but finally everything is in place for transfers to take place."
However even after a Bill receives Royal Assent, it requires 21 days' notice to become law. Mr Cox said he understood that permission had been obtained for the 21-day requirement to be waived so that 6 April would be the date that the changes take effect.
That's important as it marks the beginning of the new tax year and hitting that date will reduce complications.
According to HM Revenue and Customs, there are approximately 6.3 million CTF accounts, holding an average of £1,400 – or a total of £8.9bn. The tax-free savings schemes were set up by the Government at the start of the last decade to help give children a start in life.
Children were handed £250 at birth in the hope that their parents and grandparents would then contribute to the funds to provide a nest egg when holders reached 18. The plan was that children would receive a further £250 when they reached the age of seven. But the Coalition scrapped CTFs following the election in 2010, which has meant many have remained dormant.
But it seems that parents wanting to shop around for the best rates for a child's CTF cash are being turned away because of uncertainty among the providers of Junior Isas. The Independent called child trust fund providers to ask whether they could transfer CTF cash, only to be told by helpline assistants that advice could not been given until the final regulations were released.
Other financial advisers are also worried that changes were being implemented too close to the bone.
Alistair Cunningham, a financial planning director at Wingate Financial Planning in Caterham, Surrey, said he had been watching the Bill's progress and was concerned it took so long to get Royal Assent.
He added: "As CTFs were available for a relatively short period, it will often make sense to replace them with Junior Isas. But it is crazy that we are less than a working week from supposedly being able to transfer CTFs but have only just got Royal Assent on the final law."
Mr Cox said concerned parents could still do their research in anticipation of the changes. He recommended checking the cost of any transfer with your child's CTF provider.
"Stakeholder and cash CTFs will not have any charges to transfer to Junior Isa as stakeholders are not allowed to by law, However, some cash CTFs may involve a loss of interest if on a fixed-rate deal. It is unlikely but worth checking, and non-stakeholder CTFs may apply a transfer charge."
Parents need to note that only the registered contact of a CTF can instruct the transfer. Mr Cox said: "An instruction from anyone other than the CTF provider will be rejected. If you are unsure, check with the CTF provider. At the same time, check your CTF provider has your up-to-date address and contact details.
Mr Cox said he was optimistic that the changes would be made in time, adding: "There is light at the end of the tunnel for CTF holders. We expect the final legislative hurdles to be skittled over by 6 April so that transfers will go ahead as scheduled.
"Providers are geared up for a rush of transfer applications after the Easter weekend. The key to a speedy transfer is for parents to remind themselves who the registered contact of the CTF is."
Who knew? Majority of parents unaware of changes
Isa provider Scottish Friendly said that one in four Child Trust Fund accounts had not received any contributions since being opened.
It claimed 1.5 million of the 6.3 million active Child Trust Funds had not received any contributions and an estimated 1.4 million CTF accounts could have less than £250 in them at present – which means that they have actually lost money.
The provider said its research revealed over half (58 per cent) of parents were unaware of changing legislation that will allow them to move their money into a Jisa.
Calum Bennie, savings expert at Scottish Friendly, sounded alarm bells as she commented: "There was a nationwide campaign to bring about these changes and allow more freedom in how parents save for their child's future. However, no sooner was the campaign successful than it seemed to drop off the radar.
"So much so, that now there is a very real danger that if more isn't done to let people know about the change in rules, parents may just end up leaving their money in a CTF where interest rates can be as little as 1.05 per cent."

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