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The Conservative – Liberal Democrat coalition have begun to make changes to the Child Trust Fund, and will be scrapping the scheme altogether in the new year. The Child Trust Fund was bought in by the previous Labour government with parents given a £250 voucher to invest on behalf of their new born children, following by another £250 voucher when their child turns 18. Both of these amounts have been double for children in families earning a combined total of less than £16,190 a year. There are three different types of account where parents are currently able to place this investment. Family and friends can invest a further £1,200 a year. The idea was to build up savings for children that they would then be able to use once they became an adult. Only the child is allowed to take the money out, and only once they have passed their eighteenth birthday. With £500 invested by the government plus up to £1,200 a year (£21,600 in total) by family and friends, once interest has been added this could lead to a significant sum of money after 18 years.

Both the Conservative Party and Liberal Democrats were against the Child Trust Fund is the form it was in, and stated so in their pre-election manifesto’s. The Conservatives wanted to scrap it for all but those who are less well off, probably those earning less than £16,000 per year, while the Liberal Democrats wanted to scrap the scheme altogether. It seems as though the plans are closer to what the Lib Dem’s wanted.

The Child Trust Fund will be completely scrapped from 1st January 2011. Until then vouchers at birth will still be given but only at £50 instead of £250. This is again doubled for those families earning less than £16,190 a year. Parents of children not born yet will receive the voucher if born before January but not if born afterwards. Vouchers contain an expiry date and parents whose children are born prior to January have until the expiry date to invest the voucher even if this is after the Child Trust Fund cut-off date. Vouchers at the age of 7 have already been discontinued, so are no longer received. This was scrapped in August.

Existing accounts will continue as they are until they mature. Therefore those who have already received both the voucher at birth and at age seven will be unaffected by the changes. Those have received the initial voucher but not the second one will have the same benefits minus the second £250 investment by the government. In both these cases family and friends will still be able to make the £1,200 annual investment into the account.

It is children of the future who will be impacted. However a new government scheme is set to be bought in, called the Junior ISA. The Junior ISA will work in a similar way to the Child Trust Fund but without the government investment. Amongst the advantages will be tax free investment, but the restrictions will also remain in place with a maximum investment of £1,200 a year. The future of child savings by parents on behalf of their children looks like it could be the Junior ISA.

Andrew Marshall (c)