The £9 billion Child Trust Funds backwater

Over £9 billion was invested in Child Trust Funds (CTFs) as of April 2020, according to new HMRC data.

If you have a child or grandchild born between 1 September 2002 and 2 January 2011, they were almost certainly the beneficiary of a government payment – either £250 or £500 – into a CTF. The theory behind the CTF scheme was to ensure every child had some savings as they entered adulthood.

In practice, the scheme was not a great success. Nearly a third of parents ignored the CTF vouchers they received, leaving HMRC to open default CTFs from accredited providers chosen at random. The scheme survived until 2010, when the new coalition government cut payments dramatically and subsequently closed it entirely from the start of the following year. By then, there were over six million CTFs in existence.

HMRC recently published some limited data on CTFs, which revealed:

  • In April 2020, shortly before the first CTFs started to mature, there was nearly £9.2 billion invested in CTFs, with the average CTF having a value of £1,500.
  • Over 85% of CTFs had a value of less than £2,500. Strangely, HMRC did not give any more detailed breakdown of these sub-£2,500 CTFs, but some detective work suggests that their average value is below £1,000.
  • CTFs were not limited to receiving government payments and the option for top-ups remains to this day, with a current maximum of £9,000 in a tax year. However, in 2019/20, fewer than one in six plans were topped up, with the average addition being £430.

The data paints a picture of most CTFs as small, receiving no new monies and being potentially forgotten. The government tacitly acknowledges this. As part of its package for dealing with the steady flow of maturing CTFs, it launched a find-a-CTF website (https://www.gov.uk/child-trust-funds/find-a-child-trust-fund).

If your child or grandchild has a CTF, it makes sense to review it now to ensure they don’t miss out. Since April 2015, it has been possible to transfer a CTF to a Junior ISA (JISA) but not vice versa – a child can only have the one or the other. Often, a new JISA will offer much wider investment choice than the old CTF and may have lower charges.

The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

16th July 2021