Transfers between CTFs and Junior Isas

Those who choose to transfer their funds may be able to benefit from better returns, lower charges and a wider choice of products, says Andrew Gillespie, sales and marketing director of Family Investments.

He says when contemplating a transfer from a CTF to a Junior Isa, it is important to remember that, like a CTF, the money in a Junior Isa is locked away until the child reaches 18 and only then will the child alone have access to it. It is also important to note that Junior Isas will roll over into an adult Isa at age 18.

Aside from transfers between the regimes, Mr Gillespie says you can switch between the two types of Junior Isa: the Junior Cash Isa and Junior Investment Isa. However, you should ensure this is done carefully.

If you want to transfer a Junior Isa, Rob Morgan, pensions and investments analyst at Charles Stanley Direct, says you should contact the provider you want to transfer to. The Junior Isa provider will send you the necessary paperwork to complete and contact your existing provider on your behalf, he says.

Mr Morgan says advisers should be aware that partial Junior Isa transfers are permitted, but a child is allowed only one stocks and shares Junior Isa and one Cash Junior Isa at the same time, so this rules out partial transfer to the same type.

In addition, Mr Morgan says the current years Junior Isa subscriptions must be transferred in full.

Mr Morgan says: “There could be charges involved in the transfer, especially when transferring investment in stock rather than cash. However, transferring might provide greater breadth of investment choice or lower ongoing costs.”

Family Investment’s Mr Gillespie says you can also currently switch between CTF providers at any time.

Sarah Pennells, founder of finance website for women SavvyWoman.co.uk, says the decision to permit transfers from child trust funds into junior Isas made sense.

She says: “Abolishing child trust funds and then giving parents no way of transferring their children’s money from poorly performing funds or low paying cash accounts sent out an appalling message to children and parents alike about the value of saving.

“In a poll carried out by SavvyWoman on the first anniversary of junior Isas, 95 per cent of voters wanted the right to transfer child trust funds to junior Isas.

“My advice to parents who have a child trust fund for their children is to look at the interest rate the account is paying, or how the fund is performing, if it is one that invests in shares, and think about transferring to another child trust fund if they can do better elsewhere.

“That is something parents can do today, whereas the rules allowing parents to transfer child trust funds to junior Isas aren’t due to be introduced until April 2015. They can always transfer to a junior Isa once the rules are relaxed.”

Anna Bowes, director of Savingschampion.co.uk, says one thing for advisers to be aware of is that competition drives the market, therefore the issue with closing off the CTF market, is that competition dries up and interest rates start to dwindle.

She says: “Although there are very few providers actually offering CTFs, the simple truth is that better rates can be found with Junior Isas; in some cases by as much as double.

“It is a move that has been a long time coming. For a government that talked about needing simple savings vehicles, by replacing the CTF with a Jisa and not allowing the two to be interchangeable, it added complexity which quite frankly can prompt inertia.

“As we have to wait until 2015 for this change to come into force, parents and guardians should check the interest rate they are receiving now, and move if the rate can be improved.”

Ian Sayers, director general of the Association of Investment Companies (AIC), says the creation of a single Junior Isa market should be a great opportunity for the investment company industry.

He says: “Investment companies can be an ideal way to save for children and are particularly popular for this purpose. Their closed ended structure and the ability to gear have contributed to investment companies’ strong long-term performance.”

Speaking at the end of 2013, Mr Sayers pointed out if you had invested the then annual Junior Isa limit of £3,720 in the average investment company 18 years ago that would have turned into £15,763.