Children miss out on £5bn tax free savings
In response to HMRC's most recent ISA Statistics, Halifax research reveals an estimated annual shortfall of £5.1bn in unused Junior ISA (JISA) allowances with children continuing to miss out on the benefits of tax free savings.
JISA Market
Today's publication of HMRC's updated ISA Statistics showed a 238% increase in JISA subscriptions since last year, with a total of 295,000 JISAs open at the end of the 2012/2013 tax year compared to 71,000 at the end of 2011/2012.
Halifax, which has retained a market leading status since launching its market leading 6% JISA in February 2012, now has over 80,000 Cash JISA customers, providing 40% of all Cash JISAs.
Just 15% of parents whose children qualify for a JISA have opened one. Of those who have, only 10% managed to save the full allowance in 2012/2013 (£3600), with the same proportion committed to utilising the total 2013/2014 allowance of £3,720.
The current shortfall highlights not only the unused allowance of existing JISA customers, but also the missed opportunity of parents with children who qualify for a JISA but do not have an account.
Richard Fearon, head of Halifax Savings, says: "When HMRC's figures came out last year there was a consensus that, on the whole, Junior ISAs had not made the immediate impact expected, however our Junior Cash ISA is a clear demonstration that there is the opportunity for innovation in this market and a potential to further encourage positive savings habits from when children are young.
"It is important for parents to also consider the longer term tax free benefits JISAs provide. Not only do they protect your children's savings from any tax that would otherwise be due on the interest earned, but JISAs also provide a great head start when the child grows up, with the account retaining its tax free status when it matures into an adult Cash ISA."
Children's Savings Come Second
Research undertaken on behalf of Halifax shows 39% of parents believe that they should save for themselves before their children, with just a fifth (20%) believing the children's savings should take precedence.
Dads (40%) are more likely to prioritise their own savings above their children's compared to mums (29%), with parents in the Wales and South West more likely to prioritise their own savings pots (35%) above those of their kids (13%) than any other regions.
The South East was the only region where parents place equal priority on their own savings and those of their children. A sentiment which is reinforced by the fact that one in four JISAs are opened in the South East.
Barriers to JISA account opening
Lack of awareness remains one of the greatest barriers to opening a JISA; two thirds (66%) of people do not know what a JISA is.
For parents who have children that qualify for a JISA, being unsure of how much they could save (21%) not fully understanding the accounts (20%) and uncompetitive interest rates (20%) are the three most likely reasons that would prevent them from opening an account.
Richard Fearon, adds: "There is clearly a lack of awareness of the benefits of tax free savings for children and as a result parents need to be encouraged to consider JISAs as a viable savings option to ensure allowances are maximised more effectively in future.
"Saving tax free should be a savings priority at any age. We would welcome any changes that enable and encourage more parents to save tax free for their children, including the ability for existing Child Trust Fund accounts to be transferred into Junior ISAs."
As announced in the Budget, the Government is now consulting on whether it should be possible to transfer funds from CTFs into JISAs, and if so, on what basis such transfers should be available. The consultation is expected to conclude on 6 August, to be followed by a 'summary of responses' publication.
Halifax JISA Product Details
Minimum opening balance £1
For children under 18
Open in branch only
Interest paid annually on 5 April (or previous working day if this falls on a non-working day)
No withdrawals permitted until the child is 18, except in the exceptional circumstance of the child's death or terminal illness
Transfers-in and transfers-out are permitted
6.00% tax free/AER variable if an adult cash ISA is held or child is 16 and over. If an adult Halifax Cash ISA isn't held, the standard Junior Cash ISA rate (3.00% tax free/AER variable) will apply
Halifax JISA customers that opened the account last year, and take advantage of the annual limit, at the 6% rate, from birth to the age of 18, will have a tax free savings pot of £121,525 when the product matures into an adult ISA. This is £32,014 more than an account paying 3% AER.