Alongside the 16th birthday cards and heartfelt gifts, the first of six million children will today start to gain control of a savings account few of them will even realise exists.
Launched in 2005, the idea was to establish a savings habit among children, providing a cushion of financial assets as they embarked on adult life – giving them greater confidence in their financial knowledge, skills and ability to manage their money.
It was an ambitious plan – more than six million young people now own these largely government-funded accounts. When the coalition government stopped contributing in 2011, replacing the scheme with the Junior Isa, the accounts already open remained active and their values continued to increase thanks to stock market growth and, sometimes, family contributions.
Every child born between the 1 September 2002 and 2 January 2011 was eligible for a CTF.
Though few families paid into these accounts, any payments they did make originally maxed out at £1,200 per annum and have since risen to £4,260 by this tax year. That means some funds could be worth at least £50,000 by the time the child reaches 18.
It sounds great and what 16-year-old wouldn’t want to suddenly find they can now manage (if not actually access until they turn 18) a generous pot of cash.
But there’s a problem. Actually, there are two.
Financial education is now included in the curriculum, but there are huge holes in our knowledge that such a useful sum could easily disappear into.
“Although 16-year-olds with these child trust funds won’t be able to access the money until they turn 18, they will take over responsibility for the account,” says Sarah Phillips, a tax partner at Irwin Mitchell Private Wealth. “They’ll have a choice ... to keep it in the same account or change to a different one, as well as decide on a different investment strategy if they so wish.”
She adds: “Some of the larger trust funds will be in the tens of thousands and could make a huge difference to a young adult’s life by providing the means for a house deposit, money to start their own business or to be put towards higher education – but for many parents the worry will be that their child will fritter away the fund as their first taste of freedom.”
Phillips says an easy and relatively failsafe option would be to see if the child wants to put the trust fund into a tax-free junior ISA so that it turns into an adult ISA when they turn 18, “but proper advice should always be sought.”
“It’s worth teaching your children the right way to invest so they are armed with the best knowledge available to them – the child who fritters away their child trust fund may find future assets being looked after in trust for them rather than passed to them outright.”
But this all assumes each child knows about and gets hold of what’s rightfully theirs.
Like savings, pensions, investments and a range of other financial benefits owned by Britons of all ages and financial means, a million CTF accounts have been lost. More accurately, the government has lost track of their owners.
Sixteen years is a long time and swathes of people have inevitably moved home since then.
But uptake of the CTF account by parents – and the offer of at least £250 of free money for their children (£500 for lower income families) – was woeful.
In the end around 1.75 million accounts were originally opened by HM Revenue and Customs itself because parents and guardians hadn’t done so within the first year of a child being born. “In the case of families in receipt of Child Tax Credit, virtually all accounts were opened by HMRC,” the Share Centre reports.
“For the most disadvantaged young people that’s around 440,000 lost accounts now worth nearly £0.75 billion, including over £400m from government contributions.”
The government offers advice and links to help find lost CTFs here.
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