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Last updated: March 22, 2013 7:23 pm
Savers were largely overlooked by the chancellor this year, but there are a few pieces of good news for private investors sprinkled throughout the government’s financial plans.
By far the most wide-reaching is a move to allow money locked in Child Trust Funds to be switched into a children’s version of popular Individual Savings Accounts (Isas) – a scheme that will affect up to 6m children.
Parents and financial services companies have been campaigning for this ever since the Child Trust Fund scheme was closed to new savers in 2011 and replaced with Junior Isas (Jisa).
At first glance the two savings schemes looked similar. Both are intended as long-term savings vehicles for children under the age of 18, both allow money to be held in cash or stocks and shares and can be used by parents or guardians to set aside up to £3,600 a year, tax-free, each year.
However, Child Trust Funds, which were introduced by the previous Labour government, were intended as a universal savings scheme and were automatically opened for every child with a state payment of £250.
Many parents chose not to add any money to the state contribution, leaving the majority of CTFs dormant. Those who do use the accounts to save have found that fund choices are limited and investment costs high.
Jisas do not come with a free sum of money, and are not opened for every child. However, more providers offer the accounts, as the investment sums allowed were, initially, higher.
This has created a two-tier system where parents with children born between September 2002 and December 2010 qualify for a child trust fund, and cannot open a Jisa. Those born since the scheme was scrapped, and older children who don’t qualify for a CTF can open a Jisa, earning higher returns and paying lower fees.
Cash savers can, for example, earn 6 per cent in a Halifax Junior Isa, so long as their parent also has a Halifax account, but the best rate in a CTF is 3.05 per cent from Furness Building Society.
Stakeholder CTFs, which invest money in shares or funds, cost 1.5 per cent in annual fees, compared to fees of less than 0.5 per cent for money held in tracker funds via a Jisa.
For now, parents who want to switch from CTFs to Jisas will have to wait. The chancellor has announced that there will be a consultation period of 12 weeks, expected to begin after Easter. Any change is unlikely to take place before the end of the year.
Two other changes to the way that people invest will come into force at around the same time.
From April 2014, investors who trade shares on the junior markets such as the Alternative Investment Market (Aim) and ISDX will no longer pay a 0.5 per cent stamp duty and another 0.5 per cent stamp duty for UK-domiciled funds will also scrapped.
The Budget takes place against a troubling backdrop of persisting flat output and low confidence as the economy experiences its slowest recovery since the 19th century
Ralph Cox, manager of BlackRock UK Smaller Companies fund, said the government’s decision to abolish stamp duty for Aim companies should increase investor appetite.
The cut follows an earlier consultation on allowing Aim shares in tax-efficient Isas, which would mean that the shares, which already benefit from an inheritance tax exemption, would also be sheltered from capital gains and income tax.
Daniel Godfrey, chief executive of the Investment Management Association, said the abolition of the stamp duty reserve tax, paid by managers when investors sell out of their funds, would also give savers better returns as these are often passed directly on to private investors and dragged down returns.
But some commentators say the government has not gone far enough, pointing out that investing in the UK is still more expensive than many other European and US markets.
Gina Miller, partner at wealth management firm SCM Private, which campaigns for greater transparency in investment charges, said the removal of the stamp duty for UK-domiciled funds would not make much difference.
“It will only make a small difference since most investors in mutual funds probably were not aware that they were paying this 0.5 per cen stamp duty anyway – only when they come to sell. Another hidden cost the fund manager ‘forgot’ to tell you!”
Dan Norman of TCF Investments also doubts that the cut will make much difference for individual investors. “Administrators will be happy as it was such a pain to work out,” he said. “Managers will just keep it.”
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