- The government has announced it will write to 21-year-olds who have yet to access their CTF, and explain how to track it down (Source: Economic Secretary on a drive to help young people find their Child Trust Funds - GOV.UK)
- It picked this cohort because it believes many will be working or will have accessed student finance, so HMRC should have up-to-date contact details
- In April last year, the average unclaimed CTF was worth £1,980 and there was £1.5 billion sitting unclaimed
- What can you do to trace the money?
- What is a Child Trust Fund?
Sarah Coles, head of personal finance at AJ Bell, comments:
“Cash-strapped young adults could have around £2,000 sitting forgotten in a Child Trust Fund. The government is trying to persuade 21-year-olds to track theirs down, but it shouldn’t stop there.
“At a time when the government is working hard to build a nation of investors, it’s ironic that millions of young people were investing from the day they were born, and yet hundreds of thousands of them never had any idea about the money – let alone how investments have powered the growth of their nest egg during this time.
“It’s hard to imagine losing track of thousands of pounds, but in a huge number of cases, the parents may never have known where the money went. If they didn’t pick a provider in time, the government did it for them, and of the 6.3 million accounts, 1.8 million of them were opened by HMRC. Others made a deliberate decision to pick a specific account, but lost track over the years as they moved house and forgot to keep their contact details updated.
“This nudge is the latest step in the right direction. It’s not all the government does to reunite people with their money: it already includes information when it sends out National Insurance numbers, plus it runs campaigns reminding people about this stash of cash. The trouble is that young people are busy, and not all of them are riveted by letters from the taxman. It means efforts from both the government and the providers need to be targeted and sustained.
What can you do?
“You can use the government’s online tool to trace the money. All you need is your national insurance number and date of birth.
“Once you’ve found a matured CTF, you may need to spend the money on vital essentials, but some people will be able to use it to build an investment habit that could stand them in good stead for the rest of their life. The huge growth in some of these investments since they were set up should reveal the enormous potential that investment holds.
“It’s not just those with matured accounts who should be tracking them down. While the child is under 18, anyone with parental responsibility can do it for them, using the government tool.
“Once you’ve found the money, it’s worth considering a switch. Since 2015 you have been able to move from a CTF into a Junior ISA. The two accounts lock away the money to the age of 18 – at which point it belongs to the child. They both have the same annual limits on contributions too. However, if you have a cash account, the savings rates on a JISA tend to be higher. Meanwhile if you have an investment account, you can access far more choice, at a much lower cost in a JISA.
“The charges on investment CTFs can seriously dent what you’re left with at 18. The Public Accounts Committee highlighted that many accounts are charging 1.5% a year for a portfolio of passive funds, whereas a Junior ISA on a modern platform might cost around 0.25%, plus the cost of a tracker, which can be as little as a few basis points.
“There are also plenty of people who know where the money is, and are putting money away in a CTF because it feels like an easy way to save or invest for their child’s future. However, given the risk of high charges or low interest rates, it pays to be aware of the opportunities elsewhere and vote with your feet.”
What is a child trust fund?
- All children born between 1 September 2002 and 1 January 2011 will have received money in a CTF.
- How much they got will depend on when they were born – with those born later getting smaller sums.
- Some were savings accounts and some were investment accounts. The investment accounts were either stakeholder CTFs – which followed specific investment and charging guidelines, or non-stakeholder investment CTFs – which had more flexibility over both investment and charges.
- If parents didn’t pick an account within 12 months, HMRC would put it into a stakeholder CTF.