How high charges damaged your child trust fund returns

Ageneration of savers has lost out on thousands of pounds as their child trust funds were put into high-charging and lower-returning investments, Telegraph Money can disclose.

The accounts were introduced in 2005 by Gordon Brown, the chancellor at the time. Six million were opened and were available to anyone born between September 2002 and January 2011.

Children were given a starting pot of up to £250 to invest, which could be topped up with extra contributions. Today they are worth more than £9bn in total and will mature from September.

But the returns of the largest and most popular funds involved in the scheme have failed to better the gains of the London stock market average.

One of the worst performing and most popular funds was the £900m Scottish Widows Balanced Growth portfolio, according to insurer NFU Mutual. It calculated that the initial £250 would be worth just £550 today.

Over the same period, the FTSE All Share index, a measure of the whole

Many of the scheme’s major investments delivered far lower gains than the stock market as a whole, writes Harry Brennan

London stock market, would have turned £250 into more than £740.

The poor returns of the fund can be explained by its high 1.5pc annual ongoing charge, which ate into profits, and because it invested in lower-risk but lower-returning “fixed income” assets such as bonds.

Even funds that mimic entire markets failed to deliver, thanks to their high fees. One of the better performers, the OneFamily Stockmarket 100 Trust, which tracks the FTSE 100 index, turned £250 into almost £600. However, its 1.5pc charge meant returns fell short of those on its benchmark index of almost £690.

Scottish Widows Balanced Growth turned £250 into £550, but gains on the FTSE All Share would have produced £740

Gordon Brown introduced child trust funds in 2005