Parents not taking advantage of the Child Trust Fund

According to research carried out by Unbiased.co.uk parents are wasting £63 million in child trust fund tax breaks. The research shows that only 24% of parents are adding to the fund themselves, with a miniscule 1% adding the maximum allowed amount of £1,200 a year.

The Child Trust Fund scheme sees parents of new born children receive a £250 CTF voucher from the government to invest on behalf of their children, and then receive another £250 voucher when their child turns seven. This can be added to by family and friends up to the amount of £1,200 a year, and the child receives the accumulated amount plus interest when (s)he turns 18. If fully taken advantage of the accumulated amount is over £22,000 before interest, a big helping hand to an 18 year old.

Was it ever realistic though that many parents would be in the position to add £1,200 every year? To a lot of parents this is a large amount of money; the equivalent of £100 a month. This is simply not affordable to many and the reason why the percentage adding the full amount is so low.

Supporters of the child trust fund will be disappointed that only a quarter have been adding anything at all. When the scheme was introduced it was expected that more would contribute something. Some may have taken the attitude that if they can only afford a small amount then it would not be worthwhile spending money on it, and better to support their children financially in other ways. Those with more than one child, or those who plan to have more children in future, may be thinking they will not be able to do the same for all their children, so don’t add to the child trust fund of any.

It has been suggested that many are unaware of exactly how the scheme works. According to Unbiased.co.uk 1.2 million parents haven’t invested the original child trust fund voucher. It is thought that many of those who have still don’t understand the specifics of how the scheme work and how it can benefit their children.

The Conservative Party have vowed to limit the scheme to the less well off families as part of their cost cutting plans should they win the 2010 general election. This will decrease the percentage of parents investing in the scheme even further. It is thought that parents earning over £16,000 won’t be entitled to the child trust fund the Tories come into power. The problem here would be the demographic who typically take advantage of the scheme will no longer be entitled to it. The only ones who will still be part of the initive are those families who cannot afford to take advantages. It could be argued therefore, that there are two decisions that can be made; either to keep it open for all (the Labour policy) or scrap it all together (the Liberal Democrats).

Andrew Marshall ©