Could your 16-year-old really run their own Isa? Children cannot withdraw from a trust fund until age 18… But they can control where it is invested
- Child trust funds were launched in January 2005
- Eligible children were given £250 by the Government as a tax-free investment
- The fund was topped up with the same amount on the child’s seventh birthday
- Top-ups were halted in 2010, and the scheme was replaced in 2011 by the Jisa
How happy would you be to give thousands of pounds to a 16-year-old to invest where they please?
September 1 marked the start of the second year where those turning 16 become legally able to manage their own child trust fund (CTF) and Junior Isa (Jisa) accounts — despite them probably having no savings or investment expertise.
Child trust funds were launched in January 2005. Eligible children born on or after September 1, 2002 were given £250 (£500 for lower-income families) by the Government as a tax-free investment.
Child trust funds were launched in January 2005. Eligible children born on or after September 1, 2002 were given £250 by the Government as a tax-free investment
The fund was then topped up with the same amount on the child’s seventh birthday. Subject to an annual limit, adults were also allowed to contribute to the pot.
Top-ups were halted in August 2010, and the scheme was replaced in 2011 by the Jisa.
Some parents switched their CTFs into a Jisa as the investment choice was wider, although many existing CTFs remained active.
Nonetheless, the CTF in general has proved a success.
For example, a CTF invested in the CTF-friendly L&G Tracker Trust in January 2005 with the minimum £250 grant and £250 top-up would have been worth around £1,191 by the end of last month, according to figures from investment platform AJ Bell.
For those children whose parents paid the maximum allowance into the CTF every year, ranging from £1,200 at the start to £4,368 now, the value would be more than £55,000 — including investment growth.
Children cannot withdraw money from the CTF (or Jisa) until they turn 18. But they can control where it is invested by telling the account provider they would like to become the registered contact.
Jason Hollands, managing director at investment platform Bestinvest, says: ‘Children don’t need the consent of the existing parent or guardian and the parent is powerless to block it.’
In reality, most children will be daunted by the idea of managing their own money.
My own 16-year-old, Emily, says the prospect was overwhelming, adding: ‘I do not know where I would go to find out what I need to know.’
For this reason, parents should get involved at an early stage, says Laura Suter, personal finance analyst at AJ Bell.
She adds: ‘Children should view ages 16 to 18 as a learning period, where they take more control alongside their parents, before becoming fully responsible at 18.’
Children cannot withdraw money from a CTF (or Jisa) until age 18. But they can control where it is invested by telling the account provider they would like to become the registered contact
Those children whose parents are also novice investors could find this challenging, and professional advice may be unaffordable with a small nest egg.
Adrian Lowcock, head of personal investing at investment platform Willis Owen, says you might pay as much as £2,000 for an investment of £5,000. So where can your child get help?
Mr Lowcock says older relatives, school teachers and family friends can be a very valuable resource.
Teenagers might also be interested in playing virtual investing games online, such as Willis Owen’s Play, or the London Stock Exchange’s Trading Simulator.
Most importantly, he advises that parents and children should discuss how the money will be spent.
Is it to be used for university fees or a car when they commence work? Or is it for a longer-term project such as a property?
Once a goal is identified, a timeframe can be decided.
If the money is required within the next couple of years, Mr Lowcock suggests moving slowly from shares into cash.
He says: ‘There is a risk that the stock market can fall at any moment. In a Jisa or CTF, the money may already have been invested for many years, so it’s appropriate to introduce a cash element.’
On a five-year horizon, Ms Suter recommends staying with, or moving to, shares in the hope of better returns.
A £10,000 sum invested five years ago would now be worth £14,332 and £11,810.
Looking even longer term, Mr Hollands advocates investment companies such as Scottish Mortgage or F&C, which invest in both emerging and developed markets.
Over the past five years, a £10,000 investment has grown to £17,977 and £15,194.
Mr Lowcock suggests trying to engage youngsters’ interest by investing ethically through funds such as Stewart Investors Worldwide Sustainability, where £10,000 invested five years ago would now be worth £18,475.
Ms Suter adds that taking no immediate action is also certainly an option, especially if the CTF or Jisa is already adequately invested.
She also recommends ‘shoeboxing’, namely dividing the money into pots which could be withdrawn for different purposes at different times.
It’s also worth noting that of the six million CTFs originally issued, one third (worth some 2.5 billion) have lost touch with their owners.
You can trace missing CTFs through the HMRC website at gov.uk/ child-trust-funds.
Back in the Wallace house, my daughter Emily will be taking a look at several books including Money: A User’s Guide, written by Laura Whateley, and Investing For Dummies by Tony Levene, as recommended by Ms Suter and Mr Lowcock respectively.
Whether she chooses to rejig my choice of funds for her Jisa — currently Lindsell Train UK Equity and Jupiter India —remains to be seen.