RACHEL LACEY: We wouldn't use the full Junior Isa allowance - even if we could

25 March 2020

The Junior Isa limit has risen, but is it really achievable for most savers?

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Like most parents, the thought of my kids learning to drive, going off to university – not to mention buying a property – freaks me out. Never mind the sleepless nights when they start going out, or the empty nest syndrome when they eventually leave, it is the cost of gaining all this independence that worries me.

Don’t get me wrong, I’m all for my two boys getting part-time jobs while they study and I certainly don’t think they should have everything handed to them on a plate. However, I do think they will face greater financial hurdles than my generation so, like many other parents, we would like to be able to help them in at least some way. That’s why we — and their grandma — pay a bit of money into a Stocks and Shares Junior Isa (Jisa) for them every month.

But I’m not sure it was parents like us that the new chancellor, Rishi Sunak, had in mind when he announced in the recent Budget that the annual allowance for Jisas would more than double from £4,368 to £9,000 a year.

Commentators in the financial press were thrilled by the announcement. The increase would allow parents — and grandparents — the chance to harness the power of compounding growth and build a serious wodge of cash for their children.

While it might be a great boon for the wealthy, for most parents it will come as something of a hollow gesture. How many parents, even with the help of grandparents, can afford to put £4,368 into an Isa for their child in a single year, let alone £9,000? I know we certainly can’t.

According to figures from Moneywise’s parent company, interactive investor, in the most recent tax year, only 37% of Jisas were fully subscribed, and that is for a platform that has a cost structure that favours larger investors. For Hargreaves Lansdown, only 15% of Jisas were fully subscribed.

With a none-too-shabby £80 going into each of my boys’ Isas every month, they are only putting away £960 a year — a little over 10% of the new allowance.

And would many parents even want to save £9,000 a year for their kids, even if they had the means? As interactive investor pointed out after the Budget, parents who managed to put away £9,000 a year over an 18-year period would be handing over an enormous £265,851 to their children on their 18th birthday. That’s a huge sum for an 18-year-old who may not have the same financial priorities as his or her parents.

My two certainly won’t become that rich on their 18th birthdays. Nonetheless, based on assumptions from interactive investor of 5% growth, the £80 we pay in every month should still rack up to £27,863.

It is not £250,000, but it is a positive demonstration of the power of compounding returns and the benefits of regular saving. It shows that if you have time on your hands — like an 18-year childhood — you don’t need to be putting away hundreds every month to build a serious pot.

If we are lucky and find ourselves able to save more for their futures, I would rather put it into our Isas, keeping the money in our name but being in a position to help them out as and when we want. Between us, we have a combined annual Isa allowance of £40,000, another limit we have no worries about ever exceeding.  

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