Children's funds will get Treasury top-up at age 7

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The Independent Online

Children reaching the age of 18 could find themselves with a nest egg of as much as £35,000 or as little as £690, according to detailed proposals for Child Trust Funds that were published by the Government yesterday.

The Chancellor, Gordon Brown, unveiled outline plans for the fund in last April's Budget, but these have now been finalised after consultation with financial service providers. The central proposal remains that every child born from September last year would have £250 invested for them, with children from less well-off families receiving £500. These children will be identified by Child Benefit payments.

The Treasury said yesterday that it would add an as-yet-unspecified amount to each pot when the child reaches seven years old. And family and friends will be able to contribute £1,200 a year instead of the original £1,000. All income and capital growth will be tax free, but the fund will not be accessible until the child reaches 18. Special arrangements will be made for children in care. Parents will be free to choose where to invest the money, from cash deposits to unit trusts investing in shares.

Any provider authorised by the Financial Services Authority will be allowed to manage the funds, but they will have to offer a stakeholder Child Trust Fund option. This would have low charges and would control risk by limiting the money invested in shares to 60 per cent of the fund, switching it into fixed-interest investments as the child approaches 18.

The Treasury Select Committee said yesterday that it will investigate the Government's proposals.

David White of the Children's Mutual friendly society calculates that a fund boosted by the full family contribution and invested in equities growing at an average 7 per cent a year would be worth £35,300 at age 18. But without any additional contribution the child might have only £690 at 18, assuming the Government added an extra £50 at age seven.

"I do not think this will widen the gap between the haves and the have-nots," said Mr White, "because I think it will encourage poorer parents to find something for their children, possibly by clubbing together with grandparents."

The Financial Secretary, Ruth Kelly, said: "The Child Trust Fund will ensure that children will have assets of their own to help them get a better start to their adult life. It is a leading example of the Government's commitment to an active welfare strategy based on the principles of security, opportunity and responsibility for all. It will also give young people experience of savings and investment opportunities and help them to manage their finances better in later life."

Ms Kelly said: "The design of the CTF, including an additional government contribution at the age of seven, annual statements issued by providers to all children, learning resources and a dedicated website, will help children engage with their account and make the best use of the assets at account maturity." The Government will provide an information pack to ensure parents are helped to make choices about their child's fund.

Mary Francis, the director general of the Association of British Insurers, said: "This is a new and imaginative way of helping children as well as their parents to get into the habit of saving."