The spotlight on the saving potential of using up ISA and pension allowances comes after the Government announced a consultation into allowing the transfer of assets between discontinued Child Trust Funds (CTF) and their replacement, the Junior ISA (JISA).
Billy Mackay, AJ Bell Marketing Director, says: “The government’s consultation into allowing CTF-JISA transfers is much- needed and timely because many children’s savings are locked into effectively defunct CTFs. Allowing CTF funds to switch into Junior ISAs should benefit these children. Also, with more people now managing all of their assets on a single investment platform this makes sense. As our figures show, the potential of making use of the mainstream tax-efficient savings vehicles available to families is considerable.”
The maximum amount a family of four can save in the 2012/13 tax year is £136,960, which incorporates the pension and ISA allowances of two adults and two children. In the 2013/14 tax year this rises to £137,680 because the adult ISA limit increases by £440.
If there were no further changes to ISA and pension allowances over the following 17 years £3.319m could have been saved, with investment growth of 3%.
Mackay continued: “It may surprise some people to learn that as a family they could potentially save more than £3.3m in the time it takes a new-born child to reach 18.
“While it may not be in the grasp of most families to use up all of their pension and ISA allowances every year, these numbers simply highlight their potential. Saving far smaller amounts could still result in highly significant sums over a number of years, particularly in light of the fact we have only factored in a relatively low rate of investment growth in these figures.
“The tax benefits of pensions and ISAs are considerable and anyone saving for themselves, their children or other family members, should probably focus on these products first - depending on their specific circumstances and goals.”
Charles Galbraith, Managing Director of AJ Bell’s Sippdeal online investment platform, adds: “Many Sippdeal clients take advantage of the complementary benefits of pension and ISA saving for the whole family. One of the advantages of taking this approach is that you can adopt a more holistic strategy in managing assets across the family. Adopting an investment strategy that allows for all of your assets makes a great deal of sense.”
The tables below detail the amounts a family of four could save each year in adult and child pensions and ISAs.
Figures are also included for adults using pension Carry Forward, bringing the total that could be tax-efficiently saved in the current tax year to £436,960.
2012/13 Two parents and two children including carry forward
2012/13 Two parents and two children not including carry forward
2013/14 Two parents and two children including carry forward
2013/14 Two parents and two children not including carry forward