
Savings funds might not sound too interesting to kids, but it’s something you should look into on their behalf. The experts from Sheffield Mutual explain
• When should I start saving for my child’s or grandchild’s future?
It is only natural to want to provide the very best possible start and future for a child you care about. You can start saving for a child from as soon as they are born and there are a variety of plans available that parents and grandparents can open to give a child a financial head start in life. It’s never too early to start saving for the future!
• What is an Investment Junior ISA?
Junior ISAs (JISAs) were first introduced by the government in November 2011, as a way for parents or guardians to set up a long-term tax-free savings account for their child(ren).
There are two types of JISA available; a stocks and shares JISA and a cash JISA. Sheffield Mutual offers a stocks and shares JISA in the form of a with-profits insurance policy, which is designed for the medium to long-term and matures on the child’s 18th birthday. We refer to our JISA as an Investment Junior ISA because of the way we invest. All our members’ money is pooled together in our with-profits fund, in assets such as the stock market, equities, bonds, fixed interest and property. The fund is managed to provide a medium-low risk investment.
• What ages can benefit from a JISA?
An Investment Junior ISA can be opened from birth up until the age of 18.
The child must be a resident in the UK when the JISA is opened (or a dependant of a crown servant living overseas). Although the funds belong to the child (the ‘policyholder’) at all times, the policy must be opened and operated by a ‘registered contact’ (someone who will manage the plan) until the child reaches at least 16 years of age. The registered contact will be the person with parental responsibility for the child, with the child able to take over their plan, if they wish, at age 16.
The JISA will mature when the child reaches 18 years of age. At this time the child can withdraw the funds or rollover the investment into an adult ISA in their own name. Withdrawals are not allowed at any time before age 18.
• Who can pay into a JISA, and how much can they pay in?
Once the Investment Junior ISA has been opened by a parent or guardian, anyone can pay into the plan (including parents, grandparents, family members and friends).
The government sets the investment limits and the current allowance for the tax year, which runs from 6 April to 5 April, is £9,000 or £750 per month. This amount can be split between a stocks and shares JISA and a cash JISA, providing the limit is not exceeded in the tax year. The minimum in the Sheffield Mutual Investment JISA is £10 per month or a single lump sum of £100.
• What is the potential return of a JISA? Is it guaranteed?
The Society aims to add annual and final bonuses to the plan throughout its term and Sheffield Mutual will guarantee a minimum final amount of 100% of the premiums paid in the event of death, terminal illness or maturity (when the child reaches 18), providing the premiums have been invested for at least five years. No guarantee is given in respect of premiums paid within five years of the date if the claim or maturity and the payment of bonuses is not guaranteed. Please visit the performance page on our website for up-to-date bonus rates.
• What other forms of savings plans for children are available?
Sheffield Mutual offers a number of different options for children’s savings, depending on what you are looking for.
Tax Exempt Savings Plan
One of our most popular plans is the Tax Exempt Savings Plan which is only available through friendly societies. You can start saving from as little as £5 per month (up to £25 per month) and choose a term between 10 – 25 years so that the plan will mature at a time when you think they’re old enough and wise enough to manage the proceeds properly! TESPs are popular with parents and grandparents as it is a great way to save small regular amounts to build up a lump sum and helps to get you into the habit of saving without “dipping in”. This is an extra tax-free allowance in addition to ISA/JISA allowances, but not many people know that they even exist. If you want to save more than £25 per month, you could also consider the Children’s Regular Savings Plan.
• If you surrender the plan before maturity (which is the term you select when first starting the plan), you may get back less than you have paid in.
• Tax treatment depends on individual circumstances and may be subject to change in the future.
Children’s Investment Bond
The Children’s Investment Bond could be ideal if you have a single lump sum that you would like to invest for a child for a minimum of five years to allow them to receive a capital guarantee plus bonuses (bonuses are not guaranteed). You could start an Investment Bond today with a minimum amount of just £1,000 and they’ll receive a guaranteed minimum return of your initial investment plus 3% after five years. The Society also aims to add bonuses based on the guaranteed amount each year, and there is the prospect of a final bonus too! The bond is open-ended and can be left to run until the child needs the funds – as the proposer of the plan, you decide when that is.
• If you surrender in the first five years a surrender penalty will apply, meaning you might get back less than you invested.
Child Trust Fund
Any child born in the UK between 1st September 2002 and 2nd January 2011 should have been issued with a voucher from the Government. Vouchers were worth £250 or £50, depending on when the child became entitled. The voucher enabled the parent/guardian of the child to choose a provider for their child’s CTF. If the voucher was not used before the expiry date the Government allocated these accounts to various product providers to ensure the children didn’t miss out on their policy.
You can no longer open a new CTF as all the Government vouchers have now expired, however, you still have the option to transfer the CTF to a different provider or transfer the amount to a Junior ISA.
• Where can I get independent advice about investments for children?
Sheffield Mutual cannot provide advice but CAN give factual information on our products. If you are in doubt as to whether a savings or investment plan is suitable for you, you should consider contacting a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand.
• What is a Mutual Society?
Even though mutual societies have been around for hundreds of years, there is still confusion and a general misunderstanding about what a mutual society actually is.
The societies were set up to allow members to contribute to a mutual fund and be able to receive benefits in times of ill health or as they reached old age.
Mutual societies differ from other financial organisations as they don’t typically have shareholders and are owned by their customers (usually referred to as members). They also tend to offer additional benefits to members, have a focus on customer service and some also invest ethically. For example, Sheffield Mutual seeks to adopt an ethical approach to investing within its with-profits fund and it is our policy not to invest knowingly or directly in industries relating to armaments, tobacco, gambling or pornography.
• What is the story behind Sheffield Mutual?
Sheffield Mutual was originally established on 16 May 1892, over 130 years ago as the ‘Sheffield Equalised Independent Druids Friendly Society’ to provide funeral and sickness benefit schemes to its members in times of financial hardship. Whilst times have changed, the ethos of providing products to improve the financial wellbeing of members remains true to Sheffield Mutual today. Prioritising our members’ interests, we aim to provide an exceptional and trustworthy service through easy-to-understand products, with the strongest returns possible.
• Where can I find out more about Sheffield Mutual?
More information can be found on our website (www.sheffieldmutual.com). Alternatively, if you would like to call us on 01226 741 000, a member of our team would be more than happy to help with any questions you may have.
The JISA value could be reduced if transferred out during adverse market conditions, but money invested for five years or longer is guaranteed. Tax treatment depends on individual circumstances and may be subject to change in the future. Bonuses are not guaranteed.
The content above provides generic information and opinions of the writer and should not be relied upon for making investment decisions. No advice has been provided by Sheffield Mutual. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should consider contacting a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand. Any reference to taxation is based on the writer’s understanding of current tax legislation and practice, which could change in the future.