The government’s plan to more than double the annual amount that can be saved into Junior Isas and child trust funds is likely to be “pie in the sky” for most households.
The government announced in the budget that the annual subscription was increasing from £4,368 to £9,000 from the next tax year.
Interactive Investor head of personal finance Moira O’Neill said: “In reality, being able to invest £9,000 a year per child is pie in the sky for most families, even when resources are combined across the generations.”
O’Neill added: “For the lucky few, the Junior Isa would be worth £265,851 if £9,000 was invested from birth every year with a 5% annual return – by no means guaranteed, but a staggering amount for the lucky few who have money like this to set aside. With a 3% annual return, the pot at 18 would be £217,051.”
Only benefits a small group of people
Similarly, AJ Bell personal finance analyst Laura Suter (pictured) said with the average subscription per account being less than £1,000 it’s unlikely to be a boost many households will use.
“The move to hike the Junior Isa allowance but keep the main Isa and Lifetime Isa rates the same means it only benefits a smaller group of people – making the move cheaper for the government.
“The increase in allowance means a parent starting next month for a newborn child could build a tax-free pot of more than £240,000 by the time their child reaches 18, assuming they put the maximum in each year and it grows by 4% every year after charges.
Don’t just focus on young savers
Personal Finance Society chief executive Keith Richards said it was great to see the amount doubled but, added: “The government needs to do more to encourage a long-term savings habit for consumers of all ages.”
Willis Owen head of personal investing Adrian Lowcock said: “This is a truly eye-catching change, doubling what can be saved in a Jisa or CTF, and allows parents to save truly life-changing amounts for their children tax free.
“It also acts as a way to encourage savings for the next generation, helping to ingrain a vital long-term savings habit in our children.”
