Is your child sitting on a £50,000 windfall?
Next month 55,000 teenagers will get access to Gordon Brown’s freebie trust fund cash. So...
FROM next month, teenagers will receive a windfall worth as much as £50,000 when they turn 18. They will be the first to get their hands on Child Trust Fund (CTF) cash given to them when they were born. The tax-free funds were launched in 2005 by then chancellor Gordon Brown to encourage families to save for their children’s future.
Under the scheme, every child born between September 1, 2002, and January 2, 2011, received a £250 voucher, or £500 if they were from a low-income family. They received a second voucher at age seven.
Parents could continue to top up the account by a limited amount annually, but children could not withdraw any of the cash until they were 18.
Over the next 12 months more than 700,000 teenagers will celebrate their 18th birthdays and get the keys to funds worth thousands.
Millions more will join them in the course of the next nine years, with about 55,000 gaining access to their cash each month.
Roughly half of the teenagers will receive more than £5,000 when their account matures, according to provider Unity Mutual.
Just over a quarter will have more than £20,000, while the luckiest could have almost £50,000 waiting for them.
How much they get depends on whether parents made additional contributions and if the money was kept in cash or invested in the stock market. The 2020/21 limit is £9,000.
For example, if parents contributed the maximum permitted each year, on top of the two £250 government vouchers, a teenager with a cash CTF paying 2pc would have £49,383 by the time they turned 18, according to calculations by investment firm AJ Bell.
ON THE other hand, parents who saved £100 every month and invested the money in the FTSE 100 through the CTF, would see their children receive a £24,624 nest egg.
Children who received only the two government vouchers would have £668 today if the money had stayed in the cash CTF or £1,198 if it had been invested in the FTSE 100.
The rules allow children to take control of their account at the age of 16. This means they can decide where the money is invested or switch provider — but they are not allowed to make withdrawals. Once they are 18 they are free to do as they like.
About four in ten teenagers say they want to continue investing their money, according to Unity Mutual. And almost a fifth say they don’t plan to spend a penny of their fund.
Laura Suter, personal finance analyst at AJ Bell, says: ‘For many 18-year-olds this will be the first decent chunk of money they’ve been in charge of, so it might seem daunting. But there are several options including saving it in cash and transferring it into an Isa and investing it.’ With the stock market taking a bashing this year, they might want to keep the money invested until it recovers.
Myron Jobson, personal finance campaigner at investment platform Interactive Investor, says: ‘Those with maturing accounts may be itching to get their hands on the cash, but they should think twice before making withdrawals because the value of the pot could be worth considerably less than it was at the beginning of the year.’
CTF provider Onefamily, where the average fund is worth £2,079, is offering a new Isa linked to shares in environmentally responsible companies. You can invest as little as £25 a month.
It found eight in ten teens would choose to save in the light of the chaos caused by Covid-19.