Fidelity Junior ISA launches November 1st
Tom Stevenson provides some Junior ISA key facts alongside some commentary and answers to some popular Junior ISA questions.
Tom Stevenson, Investment Director for Fidelity Worldwide Investment comments: ”The Junior ISA will bring to parents and children a unique and compelling set of benefits and tax advantages. Nothing else allows a child to own investments in their own right in a completely tax-efficient way and it will be the only savings vehicle that will enable children to roll their investments into another tax-free wrapper at the age of 18.”
“Young people have the greatest opportunity to benefit from the long-term performance of stock markets and doing so in a tax-efficient way stacks the odds in favour of a good outcome. At the same time, we believe the introduction of the Junior ISA will help reinforce the benefits of long term saving – hopefully this will be a good lesson for later life. Children need all the help we can give them due to increasing life expectancy and the fact that cash-strapped employers and governments are increasingly putting the onus on individuals to prepare for their own retirement security. Until now, investing for a child has been a quite complex process but the format of the Junior ISA makes investing for children simpler than ever.”
Key Facts
Assuming the maximum Junior ISA allowance is invested from birth (Apr 2011) to 17 (using 2011 amount adjusted for 2% inflation each year with annual growth rate 5%, no adjustment for inflation or charges on savings) the child would have £226,909.88 by the time they were 30 or £1,013,775.30 by the age of 60.
If the child continued the savings habit at the same rate they would have £510,734.38 by the time that they are 30 and £4,015,286.38 by the time they are 60.
We have calculated that an investment of £100 per month in the Fidelity MoneyBuilder Growth Fund over the last 15 years would be worth £28,666.03 today in a Junior ISA wrapper and £100 per month in Fidelity Special Situations would be worth £43,055.61 in a Junior ISA wrapper.
Contributions over and above the £3,000 annual allowance will not be exempt from IHT. But Grandparents will be able to give their annual £3,000 IHT exempt allowance to their grandchild for its Junior ISA and that is then treated as tax free so it’s a double benefit from an overall tax relief point of view.
Fidelity can pull more scenarios if this is of interest, please contact Laura Brownsell 01737 837846
Questions and Answers
What is a Junior ISA?
A Junior ISA is a new tax efficient savings account designed for adults to help children save and invest for their future.
When is it being launched?
The Junior ISA will be available from 1st November 2011. However, not all fund providers and platforms will be launching the Junior ISA. Check with your provider to see if you will be able to access a Junior ISA via them or if you need to go elsewhere.
How much can be contributed into the Junior ISA?
The Junior ISA allowance is £3,600 per annum. This limit will be indexed by CPI from 6th April 2013 onwards.
Is it possible to invest in both Stocks and Shares and Cash within a Junior ISA?
The £3,600 allowance can be Stocks and Shares, Cash or a combination of the two.
If a child is 16 and already holds an ‘adult’ Cash ISA, can they still apply for a Junior ISA?
Yes. 16 year olds who have already opened an adult Cash ISA are still eligible to open a Junior ISA. At the age of 16, an investor can hold £3600 within a Junior ISA in stocks and shares or cash, and £5340 in an adult Cash ISA.
Is it possible to open a Junior ISA with a different provider each year?
No. Regulations prevent clients from opening a different Junior ISA with separate providers for each plan year. If clients wish to use a new provider they need to transfer their existing Junior ISA to them in full before making any further investments. A way of getting around this is to invest via a fund supermarket such as Fidelity Funds Network.
Is it possible to take income from the Junior ISA?
No. Income is not permitted for Junior ISAs. If the Junior ISA is invested in income-paying investments then income will automatically be reinvested.
Can money held in a Junior ISA be accessed at any time?
No, money held in a Junior ISA cannot be accessed until the child is 18. Like a Child Trust Fund, the account is set up for the child and only they can access the money when they reach 18 years of age.
Who is eligible to open a Junior ISA?
Junior ISAs will be available for any child resident in the UK who is:
i. born on or after 3 January 2011
ii. born before September 2002 and under 18.
iii. born between the above dates that do not have a Child Trust Fund.
If a child has a Child Trust Fund can they open a Junior ISA?
No. Junior ISA regulations prevent children who already have a Child Trust Fund from opening a Junior ISA.
Is it possible to transfer a Child Trust Fund to a Junior ISA?
Not at the moment. But the Government may decide to merge Child Trust Funds and Junior ISA products in the future.
How does the launch of Junior ISA affect Child Trust Funds?
Existing Child Trust Funds will not be affected by the introduction of Junior ISAs. But if the child already has a Child Trust Fund, they will not be able to open a Junior ISA under the current regulations. Otherwise they would benefit from double tax-advantaged savings allowances.
What happened to Child Trust Fund vouchers which were issued but never invested by parents?
If a Child Trust Fund was not set up within 12 months of the voucher being issued then the government chose a provider on the child’s behalf. Annual statements will be issued by the Child Trust Fund provider.
Who can pay for the investment into the Junior ISA?
Once the account has been opened by the parents or guardians, payments for Junior ISA investments can be made by anyone including parents of the child, family members or friends. Alternatively, investments can be made directly from the child.
Why is Fidelity offering the Junior ISA?
We are one of the largest ISA providers, with hundreds of thousands of clients who come to us specifically for ISAs, and offering a Junior ISA is a natural move for us. Because we have a fund supermarket, investors who choose Fidelity for their Junior ISA will be able access 1200 funds from more than 70 fund management companies. This is particularly important for Junior ISAs because, unlike with an adult ISA, a Junior ISA (even from different tax years) has to be with one provider at any given time. Investing in a Junior ISA via a fund supermarket means that having as wide a choice of funds and providers as possible gives children the flexibility to maximise their returns over that 18 year period.
Why we are ready and other providers aren’t
Fidelity wanted to be able to offer the advantages of a Junior ISA, to children of any age, as soon as possible. It is hard to understand why anyone would not turn to a Junior ISA as the first place to save or invest for a child because there are many tax efficiencies and administrative advantages for those making contributions for child.
The potential for the Junior ISA
What Junior ISA will bring to parents in terms of saving/investing for their child is very compelling, this is a completely brand new savings solution that offers benefits and tax advantages to both parent and child that no other savings vehicle has ever offered before. For example, there is no other savings vehicle that allows a child to own investments in their own right which is completely tax efficient; there is nothing currently that enables the child to roll their investments into something tax free at 16; and never before have the parents themselves been sheltered from the tax man when investing for their children. In addition, a Junior ISA also offers grandparents a way of making the most of their IHT allowance in advance and also tax free for the child.
We know from recent research that even before the launch of Junior ISA, 1 in 5 people already plan to open one for their child, and over 75% of those people will make investments every year. Given that within that sample some children will not be eligible because they are in a CTF, some respondents may not have children etc, 1 in 5 is a very strong number for something that has not yet launched. We believe this signals that many people view the Junior ISA as a great opportunity.
Young people have the greatest opportunity to benefit from the long-term performance of stock markets, and the Junior ISA will allow them to do so in a tax-efficient way, while at the same time reinforcing the benefits of long term saving – hopefully this will be a lesson for later life. Previously investing for a child has been a quite complex process but the format of the Junior ISA makes investing for children simple.
What are the advantages of using a fund supermarket when investing in a Junior ISA?
The benefits of investing via a platform stand out when deciding where to invest a child’s Junior ISA. Unlike with an adult ISA, a Junior ISA (even if invested in a different tax year) has to be with one provider at any given time (although it can be switched between providers if you wish). This means that if you invest with a platform you can allocate the allowance amongst a variety of fund providers each year, rather than only being able to invest with one provider. It also means that each year you can keep your Junior ISA in one place and just make decisions as to which funds to invest in rather than having to transfer past Junior ISAs. Platforms also offer tools and guides to help investors assess which asset classes and types of funds to invest in.