A children’s ISA will be available from autumn 2011, the government has announced, providing tax free returns for child savings.

The coalition government announced earlier this year that Child Trust Funds would be scrapped entriely by January 2011 and undertook an informal consultation to consider a replacement.

On 26 October, financial secretary to the Treasury, Mark Hoban, said the Junior ISA would be introduced to offer parents a simple and tax free way to save for their child’s future.

The account will be owned by the child it is opened for and ‘locked’ until that child reaches adulthood. Investments can be in cash or stocks and shares, as with a standard ISA, with annual contributions also to be capped.

“The introduction of this new account means that we can still offer people a clear way of saving for their children, while saving the half billion pounds a year that we currently spend on Child Trust Funds,” Hoban said.

Child Trust Funds provided a government contribution towards savings.

The Treasury said, following the consultation, it was clear there was an ‘appetite for families to have a clear, simple and tax-free savings option for their children’.

Carol Knight, head of member services at the Tax Incentivised Savings Association said: “Following the decision that children born after the end of this year will not qualify for a Child Trust Fund there has been a real need for a scheme that is attractive to the consumer, is simple, provides choice, flexibility and variety and that is built on a brand they can trust.”

Knight said there was an increasing awareness of the need to take personal responsibility for saving for the future.

“Many parents even now are making financial sacrifices to help children through university or onto the housing ladder so this new savings scheme will play an essential role by providing a vehicle which the public feels comfortable with and will help families make provision for the future,” she added.

Chief executive of child savings provider Family Investments, John Reeve, said it was not clear whether the Junior ISA would provide the boost for children’s savings that the Child Trust Fund (CTF) did.

“The government funded CTF voucher really provided the nudge for all parents but particularly those from lower-income families, to start saving for their children. Without a government voucher, it is crucial for the Junior ISA to be as clear, simple and accessible as possible to encourage parents to use it,” he said.

Although the product was being called a Junior ISA it appeared to be a CTF minus the government contribution and the timetable for introduction meant there would be a six month gap between the end of CTFs and the launch of Junior ISAs.

© Fair Investment Company Ltd