The government has stopped short of merging Junior ISAs and child trust funds (CTFs) but left the door open to the move in the future as it monitors the effect of allowing transfers.
The government is to allow transfers from CTFs to Junior ISA from April 2015, but in its response to a consultation to the measure, rejected the call from some respondents for the two savings vehicles to be merged.
'In line with the views of the majority of consultation respondents, the government has decided not to merge the CTF into the Junior ISA at present,' it said.
'Instead, it will permit the voluntary transfer of savings from CTF to Junior ISA where requested by the registered contact. Under the voluntary transfer proposal, the government will not be permitting providers to voluntarily convert their books of CTFs into Junior ISAs without the consent of registered contacts for the relevant CTFs.'
However, the government said that it could intervene further in the CTF market, and that could include a merger with Junior ISAs.
It said it would use these powers should the unlocking of CTFs make their market unviable. CTF providers have been left with little incentive to provider the best returns on the accounts following the introduction of Junior ISAs, and there are concerns that the market will deteriorate further, punishing those who fail to transfer into a Junior ISA.
'In a worse case scenario, there is a chance that the impact of transfers out of the CTF market will affect market viability, but that some parents will still not be aware that they should request a transfer to another CTF provider who is performing better, or to request a transfer to the Junior ISA market,' it said.
'The government therefore proposes to take powers in legislation to allow for further intervention in the market if required, so that it can react appropriately should there be any significant impact upon CTF market viability.'