Child Trust Funds come of age

SOME 55,000 TEENAGERS WILL HAVE DIRECT ACCESS TO A LUMP SUM OF CASH AS THE FIRST WAVE OF CHILD TRUST FUNDS MATURE. LILY CANTER EXPLAINS WHAT HAPPENS NEXT...

FROM the beginning of last month, teens turning 18 have been able to access their Child Trust Funds for the very first time. The funds were set up by the Labour Government in 2002 to provide all children with a nest egg with which to embark on adult life, without parental control.

HMRC figures show more than 700,000 accounts, worth £1.6billion, will mature in the next year alone.

The total value of CTFs in the UK is estimated at more than £10billion but millions of accounts are still unclaimed as families have lost track of accounts or never activated them in the first place.

It is believed that 1.8million accounts are still unaccounted for – 30 per cent of all funds – with an average value of £1,600.

How much do I have?

All parents and guardians of children born between September 1 2002 and January 1 2011 inclusive received a voucher from the government to invest in a CTF provider. The amount varied between £50 and £500 depending on the child’s date of birth and the household income.

If the voucher was not claimed within a year the government invested it into one of 14 CTF providers on the child’s behalf.

Some children also received an additional £250-£500 on their seventh birthday. All payments stopped from 2 January 2011 when the scheme was axed.

At least £9.3billion is sitting in CTFs, of which around a quarter is still unclaimed. The current value of each of these accounts, if no additional funds have been added, is between £996 and £1,992.

Parents were encouraged to put regular savings into these accounts, from as little as £10 a month up to £4,368 a year.

Those 17-year-olds whose parents saved just £10 a month, based on a maximum government investment of £500, would now have £3,610 in the account.

Locating your fund

If you or your parent or guardian know the CTF provider but have lost access details, they can be found via the government website gov.uk/government/publications/ list-of-authorised-child-trustfund-providers.

If you do not know the fund provider or did not set up the account yourself at the time, you can trace the CTF at gov.uk/childtrust-funds. This includes accounts for adopted children.

Once you or a parent have completed the form, you should receive a response within 15 days, but bear in mind this may be a letter asking for further information such as a birth or adoption certificate.

Once a child turns 16, they can take control of their funds but they can only withdraw the money once they are 18. Parents are not able to withdraw funds at any point.

If your fund was claimed by your parents, once you turn 18years-old you should receive a letter addressed directly to you setting out your options.

Consider your choices

It is up to the account owner to give the existing provider an instruction on what they want to do with their CTF when they turn 18.

Any matured accounts can be transferred into either a mature CTF, cash ISA or stocks and shares ISA.

The first step is to seek help and talk through your options, particularly any tax implications if the money is removed from a mature CTF or tax wrapper like an ISA. Also find out what the annual charges and fees are if you leave it within a mature CTF.

Although parents can be a good guide, it is important for fund recipients to ask questions and make their own decision, suggests independent financial adviser Marcus Paine, managing director of Modern Money.

He says: ‘Young people should speak to somebody they trust, get some advice and do some kind of risk assessment. They could demand a meeting with the family financial adviser or they could find someone who is independent.

‘It is a gift and it is not going to come along again so they need to think carefully about it. There is not

a right answer of what to do with this money but it is important to start to take responsibility for it.’

Short, medium and long-term options

A good starting point is to consider whether you would like to use the money now – perhaps for university fees, a business project or travelling plans – or whether to invest it for the medium or long-term.

And if you want to use the money straight away don’t feel guilty about cashing it in and spending it, says Neil Lovatt, commercial director at Scottish Friendly. Putting the

cash into a student account can also be a good move because they often offer enhanced interest rates.

Another option is to move the fund into a Junior Isa before you turn 18 or after this point it can be put into a cash, or stocks and shares Isa.

A cash Isa will be secure but have limited growth when interest rates are low, while an investment Isa can be an efficient way to grow your returns with the caveat that it can go down, as well as up.

‘A lot of Child Trust Funds are in index trackers or UK equity funds and these are quite a roller coaster,’

says Marcus. An Isa can be a good idea if you have no plans as it is a safer investment. For the mediumterm of three to five years you can roll the money into an ISA.’

And if your longer-term goals are to buy a property then the Lifetime Isa scheme is a great way to receive a 25 per cent bonus each year.

‘You can invest an maximum of £4,000 a year and in return the government tops up your fund with £1,000 a year, until the age of 50.

The money is locked in however and can only be used you buy your first home or withdrawn over the age of 60 as a retirement fund.