Thousands of children could be missing out on a potential windfall as parents lose track of child trust funds (CTFs). A total of £1.7bn is now sitting in unclaimed CTFs according to a cross-party panel of MPs.
Children born between September 2002 and January 2011 were given a contribution from the government - between £50 to £250 (£500 if you were on low income) - for parents to pay into the CTF.
For those who did not do anything, the government automatically invested it in a stakeholder fund - but to date, a lot of these funds have not yet been claimed. Other parents have simply forgotten they have an account or where it was.
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This money could be “failing those young adults who need them most,” said Sarah Coles, head of personal finance at Hargreaves Lansdown. “Some providers could have done more to reunite parents and children with their accounts, and HMRC could have been more on the ball for years. It’s not too late to make a difference, but we need decisive action now.”
Why are child trust funds going unclaimed?
The Public Accounts Committee (PAC), which scrutinises government spending, raised concerns that many account holders do not know about their savings or have lost track of them.
Nearly a million young adults – or 42% of all 18 to 20-year-olds entitled to the money – are missing out on it, according to its report.
HM Revenue & Customs (HMRC) must do more to find and contact those young people, many of whom are from low-income backgrounds, the MPs said.
They also said providers, which are earning “very high” fees of up to £100 million a year for passively managing CTFs mostly composed of government money, are not doing enough to link up forgotten accounts with their owners.
The committee also said families and carers of young people lacking mental capacity are finding it costly and complicated to access CTFs.
PAC chair Dame Meg Hillier said: “The aims behind Child Trust Funds are laudable – for young people to come into a pot of money on reaching 18, with the promotion of financial literacy and good savings habits.
“Schemes like these need careful planning so that they are not forgotten at the point when they mature. Our inquiry heard a world of difference can be made to care leavers in particular, with Funds acting as a jump-start into adult life.
“HMRC still has time to make sure that CTFs are given the chance to be the boost to young people’s futures which they were designed to be.”
What are Child Trust Funds?
CTFs are tax-free savings accounts held by those born between 2002 and 2011. The government paid in £250 when a child was born and another £250 when they turned seven. Low-income families received two £500 vouchers.
Extra contributions could be made and interest or investment growth would be accumulated. The average value of a CTF was around £1,900 in April 2021.
The child could then access the fund when they turned 18.
The scheme closed to new entrants in 2011 and was replaced by junior ISAs in November 2011. Anyone who has a CRF can transfer their CTF to a junior ISA to take advantage of lower fees, better investment choices or interest rates for those who opt for cash junior ISAs.
CTFs started maturing in 2018, but HMRC failed to keep a close eye on providers, who were then unable to contact hundreds of thousands of parents and their children.
How to track down your lost CTF
If you think you were eligible for a CTF but didn’t do anything with the voucher, then the money will be somewhere in a default fund.
To track down your CTF, you can use this tool on the government website. You’ll need a Government Gateway account, or to sign up to one.
“From when the scheme closed to new entrants in 2011 to when they started maturing in 2018/19, HMRC says CTFs fell down the priority list, so they didn’t keep a close eye on providers. In the meantime, those providers had been unable to contact hundreds of thousands of parents and children,” says Coles.
“They have made efforts to get in touch, and some have gone to real lengths to do so. HMRC also has a number of initiatives to reunite young adults with their cash – including sending tax ambassadors into schools to explain the scheme, and including information about CTFs when they send 16-year-olds their NI numbers,” continues Coles.
What can you do with a CTF?
- CTFs have been labelled as ‘zombie’ funds, with poor fund choices and high fees. If you do have one, you may find it is better to switch it to a junior ISA. Both CTFS and junior ISAs have a £9,000 tax free allowance. Nor all providers allow you to transfer in a CTF, but doing so is straightforward – request a transfer form from the provider you want to transfer to and they will contact the CTF provider. Bear in mind this can take a few weeks, especially if you first need to find out who your CTF provider is.
- Once your child turns 18, they can use the money to move it into an adult ISA and continue paying into it.
- CTFs and junior ISAs legally belong to the children and only they can access it when they are 18 - so beware, they may just choose to cash it in.
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