More than 500 million pounds accumulated in child trust funds have remained untouched since account holders were able to get their money back.
Around £554 million is in the savings accounts of 18-year-olds, suggesting that many do not even know they have them. Others have difficulty finding their accounts or producing the official documents (such as utility bills or driving licenses) needed to prove their membership and be able to withdraw their money.
Child Trust Funds (CTFs) were introduced by the Labour government in 2002. They were automatically opened to all children born between September 1, 2002 and January 2, 2011 who received a voucher of £250 (£500 for low-income families). Some children received a second payment of £250 on their 18th birthday.
Millions of people who will turn 18 in a while will be able to withdraw money from the child trust fund for the first time.
Children born since September 2002 have received government vouchers to invest in their future, although the money is not available until the age of 18. Savings can now exceed £1,000 and more if parents add contributions. However, many thousands of young people may not even know that these savings exist in their name.
What are child trust funds?
Child trust funds were created by the Labour government to encourage parents to save for their children.The idea was that the children would have some savings at age 18 to meet expenses such as paying for higher education or the first independent life.
The government initially paid £250 into a tax-free account for the child’s first year and then added a further £250 when the child reached the age of seven. For low-income families, the payment was 500 pounds. Parents, relatives and friends may also contribute to the account within the specified limits. This rule was relaxed by the coalition government in January 2011, before being completely abolished.
What happens now?
The first recipients of Child Trust Fund vouchers are 18 years old and can access the money for the first time. Every month, around 55,000 people turn 18 and around 6.3 million people will eventually be able to repay or keep their savings, according to HM Revenue and Customs (HMRC). Young people can manage their account from the age of 16, but cannot withdraw money from it until they are 18. For those who do nothing, the child trust fund provider transfers the money to an individual savings account, which is also tax-exempt, or to another account with similar benefits.
How much are they worth?
This money is usually placed in accounts where it is invested in stocks. The success of these stocks over time will determine their value, as well as the initial value of the bond. Accountants estimate that the fund could be worth up to £70,000 if parents contribute the maximum over many years and if investments grow. A more realistic scenario for many people is that the money has remained untouched in the accounts for many years. Even in that case, those born into low-income families are likely to benefit from a windfall of about £1,500.
Where is the money?
Parents are encouraged to open a child trust fund with a company within one year of the child’s birth. Some 4.5 million such funds have been opened by parents or guardians. The accounts of the fostered children have been opened by the local authority and are now managed by the charity The Share Foundation, which is also helping to track the funds. In 1.8 million cases where parents did nothing, the accounts were automatically opened by HM Revenue & Customs.
HMRC admits that in potentially thousands of cases, young people don’t even know they have these savings. Child Trust Funds can be found through the Government Gateway Service by logging in or registering. A unique Child Trust Fund reference number or Social Security number is also required. The non-profit Share Foundation offers a free search service. For more information on child trust funds, contact the Government’s Money and Pensions Service.
