Child Trust Funds were introduced by the Government in 2005 to encourage parents to save for their child’s future. With parents and family able to contribute to a Child Trust Fund, the child will have a range of possibilities available to choose from when deciding what to do with their money when they turn 18. This could be used for university fees, getting onto the property ladder, paying for driving lessons, a first car, saving towards a holiday or travelling around the world as part of a gap year!
The history of the Child Trust Fund
Parents of children born in the UK between 1st September 2002 and 2nd January 2011 were given a Child Trust Fund monetary voucher from the Government. Most Child Trust Fund vouchers were valued at £250, which was later reduced down to £50 due to the Government’s amended regulations in August 2010. If the parents or guardians were on a lower income, they received up to £500 in Government vouchers.
Parents had the option of placing their Child Trust Funds into a Stakeholder or Non-Stakeholder account with a number of different Child Trust Fund providers.
A Stakeholder Child Trust Fund account has to meet certain standards laid down by the Government, including maximum limits on charges, low minimum contributions and how money can be paid into the Plan. They were introduced to offer customers a straightforward, low-cost and risk-controlled way of saving for children. The child’s Plan may be lifestyled in its later years by the provider to limit the risk of any equity loss before maturity. Customers have the right to opt-out of lifestyling. Any plans that do not conform to the Stakeholder regulations are classed as Non-Stakeholder products, such as cash-based accounts or high-risk investments.
When the scheme was running, children turning seven years old were given a further payment by the Government, which was an extra £250, or £500 if on a lower income. A child with a Child Trust Fund was eligible for a further payment from the Government if their seventh birthday was between 1st September 2009 and 31st July 2010. However, this was abolished as part of the Government’s amended Child Trust Fund regulations.
Child Trust Funds were gradually withdrawn, with the Government announcing that their contribution vouchers would reduce to £50 in May 2010. All new Child Trust Funds were stopped by the Government on 2nd January 2011. Child Trust Funds were effectively ‘replaced’ by Junior ISAs; however they do not include a contribution in the form of a monetary voucher from the Government.
From April 2015, the Government announced that anyone who had money in a Child Trust Fund had the option to transfer it into a Junior ISA if they wished to do so.
Whatever decision the child makes, accessing the money inside their Child Trust Fund invested over the years can provide many opportunities for an exciting future. They are the owners of the fund and will be able to access this when they turn 18, and since 1st September 2020, children with Child Trust Funds have turned 18.
At Foresters Financial, we look after more than 1.5 million children’s savings Plans, and we pride ourselves by helping parents save for their children’s future.
How does it work?
Money can be added to a Child Trust Fund by family and friends, and the Government sets an allowance for each year. It is a tax-free child savings and investment initiative, just like a Junior ISA.
As the money saved is going towards the child’s future, nobody can access the money paid into the Plan except the child after their 18th birthday. Seeing the excitement on their faces when you tell them about the money that has been saved over the years will be rewarding, knowing that you have helped open a number of opportunities for an exciting journey into their adulthood at age 18.
What do I, the parent, need to know?
Child Trust Funds are important as they were created as an effective savings strategy introduced by the Government. They are a way for parents to invest money for their children with the added extra of receiving a monetary voucher.
A person with parental responsibility will be the Registered Contact for the Child Trust Fund. The person who is the Registered Contact has the responsibility of managing the Plan on behalf of the child. This will often be the case until the child’s 18th birthday. At age 16 the child can take over the responsibility of managing their Child Trust Fund and becoming the Registered Contact – however parents can still play this role up until the child’s 18th birthday.
Since September 2020, children with Child Trust Funds have turned 18 and now have access their savings invested on their behalf. In the run up to their birthday, ask them have they thought about their future. It is likely that they will be coming to their parents for advice on what to do with their Child Trust Fund, so you can start asking them questions on what they plan to do with their money, no matter what the value of the Child Trust Fund may be. They will have many options available if they decide to spend some of their funds or continue to invest.
HMRC spoiler alert
If you have not talked about a Child Trust Fund with your child, they are likely to find out before their 16th birthday. Children will find out about their Child Trust Fund when they receive a letter from HMRC regarding their National Insurance number before they turn 16. It is in this letter where your child will become aware that they have a Child Trust Fund. This is a great opportunity for you – as a parent – to sit down and speak to them about the savings they have waiting for them on their 18th birthday. However, if you have been keeping this a secret from your child, make sure HMRC do not spoil the surprise! It is important to plan ahead and make sure your surprise doesn’t get revealed, tell them when you are ready but also in plenty of time.
Can I still contribute to the Child Trust Fund?
Even though no new Child Trust Funds can be opened you, your family and friends can continue to contribute to your child’s future in their Child Trust Fund.
If your child has a Child Trust Fund in place with us, you can save from as little as £10 a month. Payments can be made through single or monthly contributions as long as it does not exceed the yearly contribution limit, which is currently £9,000.
With us you can contribute to a Child Trust Fund online, over the phone, via post or with a Financial Adviser. Monthly contributions can be made by Direct Debit or through your bank. For single contributions you can make a debit card payment, bank transfer (direct credit) or cheque.
As with all stock market investments the value of your child's Child Trust Fund can fall as well as rise and you may get back less than has been paid in.
My child has a Child Trust Fund – who is the provider?
If the parents or guardians did not decide which provider to place the Child Trust Fund with, the Government would have done this on your behalf.
If you’re not sure who the provider is, you should create a Gateway user ID on the GOV.UK website so HMRC can help. Once HMRC have located the Child Trust Fund, they will write to you with the name of your provider. Although it may be a bit complicated, you will find the answer for where their Child Trust Fund is.
I have found the Child Trust Fund provider – what do I do now?
Once you have found the provider you the parent, someone with parental responsibility, or the child if aged 16 or over, will need to become the Registered Contact. A Registered Contact is needed on the Plan to be able to manage the Child Trust Fund.
If we are looking after the Child Trust Fund and you the parent, or a person with parental responsibility, or you are the child and over the age of 16 and would like to become the Registered Contact, please download and complete the form. If you would like to change the current Registered Contact to another person with parental responsibility or you are the child over age 16, the current Registered Contact will have to request this change by calling Customer Services. Once completed, you will be able to activate a MyPlans account, where you can manage and view the Plan online, make contributions and see the Plan’s value and performance.
To find out more about what happens to the Child Trust Fund when your child reaches 18, please visit our Child Trust Fund Information Hub.
Tax treatment depends on individual circumstances and may be subject to change in the future.