Tuesday, 11 October 2011

Is Junior ISA suitable for School Fees Planning?


JISA - A long term investment
The Junior ISA will launch on 1st November 2011 allowing an annual investment of £3,600.

I'm sure many parents will soon be asking whether the Junior ISA or JISA as it is being termed will be a suitable vehicle for school fees planning.

The short answer is no, because proceeds from a JISA investment are not accessible until the child reaches age 18. Of course what that does mean is that it could be used for University which given the increase in tuition fees could be extremely useful...

However, a parent looking to fund University fees would also need to consider that at 18 the child is entitled to the entire amount of funds accrued in their JISA. Parents may be concerned about their children having access to large sums of money when they have just headed off to University.

While I would suggest you always speak to your financial adviser before making decisions about how much and where to save your money I would more than likely suggest to my own clients that it is probably best to utilise their own ISA allowances before looking at their children's ISAs.

Because ISA managers cannot reclaim tax paid at source on UK stock dividends, ISAs and their junior equivalent are most efficient in either none income producing equities or fixed interest funds. This makes the topic of risk and time-scale really important.

JISA are available for children who do not have a Child Trust Fund account; children born before 1st September 2002 and after 2nd January 2011. Today that makes the child older than 9 or under 10 months old (as at October 2011).

The minimum investment time scale on JISAs is therefore currently 9 years or less or roughly 17 years plus. While 9 years is clearly still a reasonable time horizon for equity investment, (by helping to reduce market volatility) aiming to avoid equity income as an investment sector could cause a balanced portfolio to look a little like an egg timer, fat at either end and thin in the middle...

While this approach may well aggregate to an overall balance, a colleague of mine once said that type of portfolio is akin to having your feet in the freezer and head in a fire. Not a place many people would consider desirable.

By utilising your own allowance first (£10,680 for 2011/2012) you will retain control of the money even after your child has reached 18 so you keep greater control over their access to the funds...

For many families, saving more than £21,360 (both parents ISA allowances) each year is not something they have to worry about. Certainly, saving that amount each year from birth until children reach 18 should more than cover University costs for the average family.

Possibly where JISA will come into its own is for grandparents to save birthday and Christmas money...

Undoubtedly JISAs are a welcome addition to the tax advantaged savings family but need to be taking in context with what you are hoping to achieve with your investments.

There are many variants and options to consider before making any investment which is why it is so important to seek professional independent advice.

2 comments:

  1. Can you please explain how either a junior ISA or a regular ISA can help save for university fees? Considering you cannot pay university fees up front and have to take out a student loan (no matter how much money you have) how can saving help pay for this?

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    Replies
    1. Andrew,

      I have just seen this comment which I appreciate is a looooooong time ago.

      There are more costs to university than just the tuition fees for which you do pay as you go, rent, books, food, beer, travel etc.

      By saving in advance you attract interest or investment growth which means the cost is reduced rather than finding it after the event or as you go.

      I read an article recently by Martin Lewis (Money Saving Expert) which explains brilliantly the best way to handle the actual tuition fee loan.

      This link is a good place to start.
      http://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes#18

      While it would be great not to have to pay for university tuition I honestly feel the way this is structured the cost of it will not really be felt by those that manage it properly and basically if you come out of university and earn only a small amount you will not have to repay it, let's say you become a high earning Doctor etc then which you will have to repay it will be only a small amount of your income.

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