Child trust funds start to grow up

The first anniversary of the child trust fund (CTF), a flagship government savings policy, came and went more than five months ago.

CTFs came into being on 6 April 2005. But a new official report scrutinising their first year was not published by the Treasury until last week.

Parents of all children born since 1 September 2002 will have received a £250 CTF voucher to invest tax-free on their child's behalf, in either a deposit or equity account. The report reveals how, after heavy criticism of low take-up by parents, some three-quarters of vouchers have been invested - compared with between 60 per cent and two-thirds in the early days of the scheme.

The rest of the vouchers have been invested by the taxman who, in line with government policy, chose a random equity fund for those children whose parents had either lost the voucher or taken no action.

But while the report emphasised that CTFs were being taken up by parents, and pledged the Government's continued commitment, it also shone a light on the high cost of advertising the benefits of what is in essence a free financial gift.

Over a two-year period to April 2006, the Government spent £8.1m on promoting the funds in the press, on television and radio, and across other media such as the internet.

Despite the information packs sent out to parents, and a website at www. childtrustfund.gov.uk, an army of advisers was still need to answer queries on an official helpline.

Over the 12 months covered by the report, 364,909 people called the number (0845 302 1470) to ask mostly about replacement vouchers (34 per cent of calls) and where the £250 should best be placed (14 per cent).

Although the CTF scheme is now up and running smoothly, the report stressed that changes would be made to it.

For children in the care of local authorities, the Government is considering making extra payments on top of the £250 given to all children at birth and at age seven.

The CTF should also play a part in introducing children to personal finance, the report hinted, since it was an example of "real life" money invested on their behalf.

Many parents agonise over whether to invest the money in cash or shares, the former being the most popular option. However, most financial advisers recommend an equity "stakeholder" CTF, since the money is to be invested for 18 years - long enough to smooth out downturns in the stock market.