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Child Trust Funds: HMRC warns savers are missing out on ‘hidden pots of gold’ – check

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HMRC today urged young people (and by extension, their parents) to check if they have a CTF waiting for them. It has been a year since the first account holders could access their funds but thousands may not even be aware of what they’re owed. Owners can now withdraw funds from these CTFs or transfer their savings into an adult ISA.

HMRC warned while hundreds of thousands of accounts have been claimed so far, many have not.

CTFs were set up for all children born between September 1 2002 and January 2 2011 with a live Child Benefit claim.

Parents or guardians set up these accounts with Child Trust Fund Providers – usually banks, building societies or investment managers – using vouchers provided by the Government.

Where accounts were not set up by parents, HMRC set one up on the child’s behalf, which may lead to many being unaware of what they are entitled to.

Between 2002 and early 2011, around six million CTFs were opened by parents or guardians, with a further million set up by HMRC.

John Glen, the Economic Secretary to the Treasury, commented: “It’s fantastic that so many young people have been able to access the money saved for them in Child Trust Funds but we want to make sure that nobody misses out on the chance to invest in their future.

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“If you’re unsure if you have an account or where it may be, it is easy to get help from HMRC to track down your provider online.”

HMRC reiterated some young people may not know they have a CTF but on top of this, parents may have simply forgotten who they set the account up with.

To help them track down their accounts, HMRC created a free-to-use online tool which allows users to find details on their CTF providers.

HMRC explained any young people unsure about whether or not they have a CTF should first ask a parent or guardian if they remember setting one up.

Once they know who their provider is, they should contact them directly – and either request to withdraw the money or transfer the funds into an adult ISA or other savings account.

For those who cannot access the tool, HMRC will provide alternative, non-digital routes to finding a CTF provider upon request. HMRC will send details of the provider by post within three weeks of receiving their request.

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HMRC concluded: “The accounts were set up to encourage positive financial habits and a saving culture among the young account holders. HMRC is working with the Money and Pension Service and the CTF providers to continue to provide financial education to the beneficiaries.  

“At 16 years, a child can choose to operate their CTF account or have their parent or guardian continue to look after it, but they cannot withdraw the funds. At 18 years of age, the CTF account matures and the child is able to withdraw money from the fund or move it to a different savings account.” Recent research highlighted what young savers are choosing to prioritise with their CTF funds.

Healthy Investment, a leading provider of children’s savings and investments, surveyed 1,100 of its younger members who turned 18 between September 1, 2020 and August 31, 2021, and more than 85 percent kept their funds invested with the historic friendly society.

Healthy Investment is a major provider of CTFs, managing more than 90,000 of these accounts on behalf of younger members and CTFs at Healthy Investment are automatically transferred into an All-share ISA on the beneficiary’s 18th birthday.

Peter Green, Healthy Investment’s chief executive, commented: “Sometimes parents and grandparents worry about what teenagers will do if they are given access to a significant sum of money at a relatively early age. The answer appears to be that most of them will continue to save it, and in many cases add to it. I am really proud of our younger members, and look forward to continuing to be part of their financial journey as they move into adulthood.”

Junior ISAs (JISAs) were launched to replace CTFs but recently, Quilter called into question how successful these accounts have been.

While investment returns are never guaranteed, analysis from Quilter highlighted since the launch of Junior ISAs in 2011, child savers holding cash have lost over £1.2billion in returns relative to those offered by investments.

This is important to note as currently, just under a third of JISAs are invested in stocks and shares, compared with four-fifths of CTFs.

Heather Owen, a financial planning expert at Quilter, commented: “When it comes to the UK’s savings behaviours, cash is king. Relatively few people choose to invest their savings in the stock market and instead favour current or easy access savings accounts, despite the historically poor returns on offer. Cash is favoured for both adult ISAs and Junior ISAs, with over two-thirds of such accounts being cash only products.

“While holding cash is no bad thing, favouring cash over investments is unlikely to build long-term financial prosperity as savers will miss out on the miracle that is compound growth, and inflation may simply erode the real value of their savings.

“Holding too much in cash is particularly unsuitable for children holding JISAs as the money will be locked away for up to 18 years, meaning any stock market volatility can be smoothed and the scope for compound growth is much…

Read More: Child Trust Funds: HMRC warns savers are missing out on ‘hidden pots of gold’ – check

2021-09-07 16:16:00

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