The government has announced that child trust funds are to be scrapped.
With neither the Lib Dems nor the Conservatives being fans of child trust funds, their future was always in doubt. Now they're likely to be scrapped from 2011.
Last week the new government talked of ‘reducing spending’ on child trust funds in its coalition programme. Yesterday it announced that child trust funds will be scrapped, with government payments being scaled back from August 1st and withdrawn altogether from next January. So what does it mean if you have a child trust fund and what are the alternatives?
Five years after the launch of child trust funds, how have they performed?
Most child trust funds are invested in shares, but around a quarter of parents choose cash. How have they performed?
There’s much speculation at the moment about the future of child trust funds with the Conservatives saying they would limit the state contribution to parents on lower incomes and the Liberal Democrats planning to abolish them altogether. When child trust funds (CTFs)were launched in 2005, the government was keen to encourage parents to choose stakeholder accounts – child trust funds that invested in a mixture of shares and moved the money to safer investments in the last five years. But around a million parents chose cash child trust funds instead.
While 74% of parents who received a child trust fund voucher opened an account, one in four missed out.
The good news is that if you didn’t get round to opening your child’s trust fund before 12-month deadline, which means the government invested the voucher for you, you can always switch to another provider.
Government figures show that over £2 billion is invested in child trust funds. But while three quarters of parents actively invest their child trust fund voucher, one in four parents are either too baffled by the choices or are unable to find the time to work out which child trust fund is the best option. If that’s the case, the government invests their voucher in a stakeholder child trust fund – one that invests in shares. If the government invested your child’s trust fund voucher, you can switch to another provider (and there’s no charge for doing so).
