Recently the first batch of children to receive their Child Trust Fund were given their second instalments. Since September 2002 all parents of new born babies in the UK have been given a £250 Child Trust Fund voucher to invest on behalf of their child. They get another £250 sum when they child turns seven, something that the first to receive this are now getting. 700,000 children will be receiving this second instalment in 2009, meaning the government will be paying out around £460 million as part of the scheme, twice what it has been paying out in previous years. There are now 4 million children entitled to the Chid Trust Fund, with £2 billion having been paid into accounts; an average of £500 per child.
The merits and success of the Child Trust Fund have been much debated. A large number of parents have failed to take up the option of a child trust fund. According to the Observer on 23rd August 2009, approximately a quarter of parents did not invest their CTF voucher within a year of their child’s birth, meaning it was automatically invested in a stakeholders account. This would suggest that it has not been that successful. There are other statistics to say that those who have invested the voucher are embracing the scheme though. TISA says that 23.3% of those who have taken up the scheme are making regular direct debit payment into their child’s account, with a further 6% paying an annual lump sum. Therefore it is hard to judge how successful it has been.
Many would argue that the government could do without having to payout an extra £230 million this year (and every year from now on) with the current economical situation. Some are suggesting that the scheme could be scrapped in future. The Liberal Democrats have stated that they would like the scheme to be discontinued as the money could be better spent in other ways, such as education. The Conservative Party, though, currently have no such plans and say that their policy on the Child Trust Fund is the same as that of Labour, who came up with the policy.
How successful the Child Trust Fund will be when it comes to the amount a child will receive upon turning 18 depends on the amount of investment by parents and other family and friends apart from the two £250 instalments from the government. Based on no extra money being paid into the account, the Daily Mail’s Barry Collins claimed that once inflation is taken into account the total amount will not be enough to buy a mountain bike. He says that the original £250 will turn into approximately (depending on interest) £410, although this doesn’t include the second £250 instalment.
With regular payments though, the story could be much different. According to a report on the Channel 4 website, Nationwide calculate that with the maximum £1,200 invested by parents a year the accumulated amount would be around £24,000, certainly enough to get an 18 year old on his or her way in life. If parent are able to invest the child benefit they receive (£20 for the first child) this would go a significant way towards this.
Judging the overall success of the Child Trust Fund is not easy. If taken advantage of by parents the money can accumulate significantly, although some would argue that they could invest themselves anyways, and the £500 from the government would not make that much difference. The main problem is that there are still many parents not taking up the scheme, although this has increased over the last couple of years.
Andrew Marshall ©
Child Trust Fund
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