Does your child have as much as £1,000 in government cash sitting in an account without knowing?
The first children to benefit from the now defunct Child Trust Fund initiative have reached the age where they’re finally able to take control of their account. However, as many as one in six of the accounts that were opened up for children born between 2002 and 2010 are now classed as ‘addressee gone away’.
With teenagers no doubt planning to tick off a few life milestones that need funding over the next couple of years, such as buying their first car or heading off to university, the cash held in a Child Trust Fund is likely to be welcome. OneFamily, which manages around a quarter of the Child Trust Fund market, estimates that £10 billion is held in Child Trust Fund accounts, with an average amount in excess of £2,000 for children born in 2002.
Steve Ferrari, Managing Director of Child Trust Funds at OneFamily, said, “In September alone, over 75,000 Child Trust Fund children will turn 16, with the average amount held in an account with OneFamily of this group at £2,175, these children can expect a healthy nest egg to put towards their future plans.
“There is still the opportunity to earn more money on these accounts. We are urging parents to continue to invest into these accounts and if they are unsure of what has happened to their child’s trust fund, or who it was originally invested with, to track it down.”
What is a Child Trust Fund?
The Child Trust Fund was launched by the Labour government in 2005 and aimed to encourage parents to regularly put money aside for their child’s future. The scheme was backdated to include all children born after 31 August 2002 and where parents didn’t open an account, the government did so in their place.
The fund was given a starting boost with a voucher of £250, or £500 for the poorest third of families, and a second voucher was given when they turned seven. As a result, some Child Trust Fund accounts have £1,000 in government cash in them, which will have grown with interest in the years since.
For those born after 1 August 2010, the second voucher was not given and by 1 January 2011, the entire scheme had been scrapped. Yet, despite less than a decade of new-borns benefitting from a Child Trust Fund, more than six million were opened. Parents were able to continue contributing to their child’s fund, but, as the figures show, in many cases this didn’t happen.
The Child Trust Fund was replaced by the Junior ISA, which gives you a tax-free way to save up to £4,128 annually for your child’s future. Even if you’ve opened a Junior ISA for your child, it’s certainly worth seeing what’s in their Child Trust Fund account too, and you can transfer the fund in.
Reclaiming ‘lost’ Child Trust Funds
With an estimated £1.2 billion sitting in ‘lost’ accounts, reclaiming a Child Trust Fund should be a step you take, even if you don’t know the provider it’s held with.
If your child was born during the dates that the Child Trust Fund was in operation, but you don’t know where the account is or how to access it, you simply need to put in a request with HM Revenue & Customs (HMRC). Submit your details by signing into the government portal here and you should receive a response within 15 days.
What to do with a Child Trust Fund?
The amount that’s held in your child’s account will vary, firstly depending on whether you added to it over the years and how much ‘free’ government money it benefited from. On top of that, you could also choose to leave it as a cash account, earning interest, or put it into a stock market-based fund, where it’s likely to have grown at a faster pace given the stock markets over the last 12 years. So, the first step to take is to simply see how much is in the account.
Once your child has turned 16, they’ll be able to take control of the account for themselves; but will not be able to make any withdrawals until they turn 18. It gives you a good opportunity to teach them about finances and the options they have, giving them a good grounding for when they’re independent.
While for teens being able to control the account might be a milestone, there’s not much you can do with it at this stage:
- Move the money to a Junior ISA: If the Child Trust Fund isn’t invested in stocks and shares, you’ll typically find it can benefit from a higher interest rate if you move it to a Cash Junior ISA account. If it is invested, you’ll need to weigh up the associated costs to see which option is best. Seeking the highest rate of interest means maximising the money in the last couple of years.
- Add to it: Whether you choose to move the money held in the Child Trust Fund or not you can continue to add to it. Even small deposits can make a difference over a few years and it can help instil good saving habits in your teen if you get them involved too.
- Plan for the future: Once your child turns 18, they’ll have complete access to the money and can spend it on whatever they like. Having a discussion about what they think they’d like to spend it on means you may be able to steer them in a sensible direction and get them thinking about the long-term. If they don’t plan on using it for some years, for example, you may be better off choosing a stocks and shares option.
To discuss your finances and that of your children’s, including how to utilise the money in a Child Trust Fund, talk to us today.