The Treasury has proposed a tax-free savings account that would provide parents with a new, tax-efficient option for saving for children.

The new account comes as the Child Trust Fund scheme, which was axed as part of the latest budget, will come to the end of its phase-out period at the end of the year.

As an investment for children, the proposed new account looks remarkably similar to the Child Trust Fund scheme, and could come onstream as early as January 2011.

While inviting consultation and input from the financial services industry for the new children’s investment account, the Treasury has suggested it include a ban on withdrawing funds until the child turns 18, children’s investments based on both cash and stocks and shares, maximum annual contributions, and tax-free returns.

Each of these elements featured in the Child Trust Fund scheme, which offered three options, a cash account, a restricted stock market investment via the stakeholder account, and a full, unlimited stock market investment through the Child Trust Fund share-based account. The maximum annual investment in the Child Trust Fund Scheme was £1,200 per child, per year.

One aspect of the Child Trust Fund scheme that is conspicuously absent from the new plan, however, is the government’s ‘start-up’ contribution of a £250 voucher to the children’s investments made for every child born after 1st September 2002. This was doubled to £500 for families on child tax credit, and a second voucher for the same amount was payable on the child’s 7th birthday.

However, very few of the children’s investments actually received the second voucher, before the Child Trust Fund scheme was scrapped in mid-2010.

With the lack of investing advice, many people have poor-performing ISA’s or bonds, and have not adequate pension provisions in place. A good financial planning firm should be able to explain all aspects of investments, giving you investment advice that suits your risk profile, and giving your investments the best chance for growth.

There are many different investments in the market, and some 3076 investment funds now available. A good financial planning firm should be able to show you where your existing investments stand in relation to their peers. We recommend seeking financial advice on your investments, and if possible use a firm of Independent Financial Advisers, as this is the highest quality standard given to a financial or investment advisor firm.

Principle First are now offering online investment advice. For clients that want to receive an analysis of their investments over the telephone and post, this is now an option, we currently give many clients the option of remote financial advice.

If you would like to review your existing options, enquire online, or call us on 0800 678 5929

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Figures published by the pensions consultancy part of Deloitte in July showed that the FTSE 100 companies (i.e. the top 100 companies on the London Stock Exchange) are, between them, some £300bn short on their pension provisions for employees.

The situation is building, and has again emphasised the wisdom of consulting your financial adviser to investigate setting up a personal pension scheme.

“This could be a demographic time-bomb,” said Gareth Flanagan, independent financial adviser at Principle First.

“It used to be the case that, for every two people working, there was one person retiring. In just a few years that could be reversed, with 2 people retiring for every one person working.”

“The era of the ‘nanny state’ is over. You are going to have to provide for yourself. Britain has always had the best pension schemes in Europe, but now, something must be done to encourage people to save on their own for their retirement,”  he said.

Flanagan noted that, while government has traditionally encouraged pensions saving and retirement planning, it now seems to be sending a mixed message. Politicians are taking a hard look at the cost of sustaining tax relief on pensions contributions, long the mainstay of the British pensions system.

“The government is already tinkering at the edges. The last budget limited tax relief t0 20% for high earners on salaries over £150,000, where they would have normally received tax relief at 40% before,” Flanagan said.

There is nothing copper-fastened about tax relief on pensions, in the current climate of aggressive belt-tightening in government spending. This major incentive underpinning employee motivation to save for retirement could well have only a few more years of life, and there are precedents a-plenty to show how such incentives can quickly disappear.

“There used to be tax relief on mortgages, and a tax relief of 15% on life policies. Both are now gone.

“With regard to tax relief on pensions saving, it may well be ‘buy now, while stocks last’”, Flanagan said.