Forgotten or rotting child trust fund?
"According to HMRC, around 700,000 trust funds are dormant, meaning nothing has happened since they were set up and they will have missed out on considerable growth."
THE baby in our house turned 16 last week. That moment of my parent’s sigh of ‘where did all that go’ repeated itself with a slightly different tone.
Faced with the thought of saving for my girls, which seemed such a long way off it was not worth thinking about, but whoosh and it's gone.
I also remember writing about Child Trust Funds (CTF) in this column all those years ago, and sure enough, she is now in a position where she can decide all her own funds where it should be invested into, whilst having access to it’s proceeds in full in two years time.
Six million people born between September 2002 and January 2011 received between £250 and £500 in vouchers under the CTF offer.
Foresters Financial, one of the largest providers of CTFs, estimate the total value of such funds maturing this year to be £2.4 billion. Each year, 800,000 teenagers are expected to grab control of that money.
If you are thinking of keeping it quiet, they will be in a classroom with lots of mates potentially showing off new phones bought with ‘their’ money. Couple that with the ability to search online via HMRC and unfortunately the secret stash is well and truly - not a secret.
According to HMRC, around 700,000 trust funds are dormant, meaning nothing has happened since they were set up and they will have missed out on considerable growth.
If you have one for your child, reconsider which fund it is now invested into. Many were initially invested into stakeholder, cheaper funds without advice, (possibly the biggest flaw in the plan) and have underperformed significantly.
Many were also pushed into safe cash accounts and missed the extraordinary growth in markets over the last 11 years.
There are many accounts however, where customers have no idea they have them at all. If you didn’t claim the voucher from the government, they automatically opened one for you and saved the money.
Others did set them up, but filed them away ‘safely’ with ‘things to do in eighteen years’ and are only likely to be found on the next Abba fancy dress night.
To find out if you have one, where it is, along with its value, you can contact the HMRC. To make it really easy for you, they ask you to complete a government gateway ID, the setting up of which is as convenient as gluing your Abba eyelashes on.
On the upside there could be £350 to £1,000 there, so worth a bit of trouble.
A £250 voucher invested straight into the FTSE250 in 2002 would be worth approximately £1,235 today. Invested into cash, it will look very different.
On the upside, there is no tax to pay on any income or profit it makes and it does not impact any benefits or tax credits received.
In 2015, the government allowed a CTF to be converted into a Junior ISA. This added to the flexibility of switching away from your current provider to access the very best fund performance and charges.
If you want to transfer to a Junior ISA, simply contact the provider of your choice or an Independent Financial Adviser (IFA) and they will sort out the process.
Should you transfer to a Junior ISA?
Interest rates are higher in Junior ISAs for a start. Add to this, the significant extra availability of Junior ISAs and therefore the competition is greater. As a consequence of this, Junior ISAs are much cheaper with fees sometimes as little as a third of CTFs. The fund choices are also much better and wider, giving you the very best possibilities to maximize returns and reduce risk.
Although unlikely, be sure to check if there are any exit penalties or guarantees before leaving the CTF. Your provider will let you know.
Also, if you do want to transfer to a Junior ISA and take advantage of the better deals, you have just 60 days from opening the ISA to complete the transfer.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial question, call Darren McKeever on 028 6863 2692, email email@example.com or visit www.wwfp.net.