Blog: Can JISAs plug savings black hole?

TISA director general Tony Vine Lott on whether JISAs can really create a new generation of savers.

When Individual Savings Plans (ISAs) first came into being there was great consternation that they would potentially disrupt the momentum to save that had just started to gather pace under PEPs. Ten years on, ISAs have demonstrated their superiority as a simpler, more flexible and more attractive product – so good that the British public invested over £45 billion into them in the 2009/2010 tax year.

It will be a while before this last tax year’s ISA contributions are totted up, but anecdotal evidence suggests that the number will be high – and some are predicting that more money may now be pouring into ISAs than into pension plans.

What better and more credible product on which to build a junior version?
What the baby boom generation learned – and to a large extent has taught its children – was how to spend. The generation that follows is on the receiving end of an unenviable legacy. There are fewer of them for a start, yet they will have to cope with additional educational costs, providing for themselves and their children, as well as having to support their increasingly long lived antecedents.

If they don’t start to learn the importance of long term financial planning early in life, they will struggle to maintain their living standards – and what better people to help them with the financial assistance to start them off than those who left them with the ghastly inheritance in the first place?

Junior ISAs are simple and tax free and any child resident in the UK who is not eligible for a CTF can have up to one Junior Cash ISA and one Junior Stocks & Shares ISA. They will be officially launched on 1st November 2011.

Parents, grandparents, anyone with an interest in a child’s financial future can contribute to either account provided the total annual limit is not exceeded. And the beauty is that there is no additional paper work. Tax forms do not need to be filled in for the child and the tax office does not need to be informed that a Junior ISA has been started. And for those who do have CTFs, whilst the government will no longer be making a contribution, they will function in the same way, albeit remaining separate.

At 16, the child assumes responsibility for the account, meaning that if they wish to transfer from one manager to another, it is within their power; and when the child reaches adulthood at 18, by default, the JISA turns into an ISA.

Some say that these newly defined adults will automatically spend their ISA savings. Some will spend some of it, there is little doubt, but those critical words are spoken by a generation that has yet to lose its spending mindset. With good fortune, JISAs may yet help convert the next generation into prudent, regular savers and investors.