The announcement by the coalition government that Child Trust Funds (CTF)are to end by January 2011 is causing concern, although parents will still be able to contribute to existing funds after that date.
In its round of spending cuts published today, the coalition government has announced the reduction and then eventual phasing out of CTFs. Payments from the government will be stopped in January 2011 and children born after that date will not be eligible to open a CTF.
Currently 1.4m parents, family and friends are adding to the government CTF contributions by paying additional money into their children’s accounts with in excess of £22m being added every month.
Parents will be relieved to hear that they will be able to continue these payments into an existing fund until their children are 18. This is a point emphasised by David White, Chief Executive of The Children’s Mutual, who said:
“We urge families to not be disheartened by the Government’s announcement but to continue to help their children fulfil their future potential by saving regularly over the long term. CTF holding children now hold a unique asset that others will not.”
Parents will be able to take advantage of other ways of saving for their children such as traditional savings accounts and trust funds, as they did before the introduction of CTF, however George Ladds, head of investments and pensions research at Fair Investment Company hopes that a child’s ISA could be made available:
“Personally, I would like to see some sort of children’s ISA. Children and their parents would be encouraged to save if they could get the same tax efficient saving benefits that we are all entitled to. If the government set an ISA allowance of £3,600 for children this might encourage more to save in a way that they want to invest and enable parents to take more control over who they save for and when they receive the money.”
The end of the CTF will save £320m as part of the £6.2 billion money saving initiative announced today.