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Child Trust Funds: The alternatives Go compare with our comparison table

Child Trust Funds: The alternatives

05 July 2010 / by Lois Avery

Child Trust Funds have hit the headlines once again, leaving parents wondering how they can safely save for their children’s future.

The Children’s Mutual has announced that they are suspending all new business to their most basic CTF accounts, following the Government’s decision to scrap the Child Trust Fund Scheme.

As part of their budget busting £6 billion cut backs the new coalition axed the Labour CTF initiative, which they deemed to be too costly.

The savings scheme gave newborns a £250 voucher and the same amount again at the age of seven, to be invested on the child's behalf until he or she turns 18.

For low income families both payments were doubled to £500.

But from 1 August, payments at birth will be reduced from to £50 and £500 to £100 for families with a low income. Payments when children reach the age of seven will stop.

The news has sparked concern from the savings industry, who say that scrapping the CTFs will leave a savings black hole as parents struggle to put money away for their children.

And following this The Children’s Mutual, one of the UK’s main CTF providers, has decided to suspend its basic CTF account, saying it is not viable to manage accounts that may only ever receive £50.

So what alternatives for parents have now that there are even less child savings options on the market?

Fair Investments’ George Ladds has urged savers to shop around saying there are plenty of other CTF providers offering a good deal.

These include Engage, Family Investments and Jump.

However he says that the Government should be working harder to provide alternatives: "At Fair Investment we have argued that the decision to scrap CTFs was a positive step but what we really need is more options. As The Children's Mutual has said, the Government did not consult with the industry about scrapping the CTF and so far, no alternative options have been mentioned. However, rather than looking at the past perhaps we should be campaigning harder for viable alternatives which can be presented to the Government.

The Child Trust Fund scheme was one of the first things to fall under the new coalition’s axe as they sought to make huge cut backs in order to tackle the huge national debt.

Labour introduced CTFs 2002 as a way of encouraging people to build a nest egg for their children. But the Lib/Con coalition has, rightly or wrongly, decided that it’s not the Government’s responsibility to build a savings pot for children’s futures.

Although the scrapping of the scheme has been a cause for concern and criticism many belive it will pave the way for simpler, less Government-backed, savings initiatives.

Children’s ISA?
Saving in an ISA would allow parents to make the most of a tax free limit in order to build up a fund bit by bit.

For example, figures show that if parents were to save Child Benefit (currently around £88 a month) into a saving plan for 18 years, based on the latest official Financial Services Authority (FSA) growth estimate of 7%, a child would have a nest egg of nearly £38,000 aged 18.

George Ladds added: "I believe that a simple system for saving for children, through a Children’s ISA with an allowance of £3,600 per annum, and clearing away not only the now defunct CTF but also tax-exempt plans would demonstrate the Government's commitment to encourage saving for children.

"Yes, the CTF was originally launched to encourage parents to save, but I think parents need to be given more credit – most, if they can afford to, will save for their children anyway, without being pushed by the Government, what they need is better options, not handouts from the state.”

Pension funds?
Some have even gone as far as to suggest that instead of saving so that children can benefit in their late teens, parents should be looking longer term and putting away for their children’s pensions. NFU Mutual has recently said said that saving for pensions from childhood would help bridge the retirement savings crisis that the UK currently faces in the wake of pension reform.

© Fair Investment Company Ltd

ProviderServiceISA OptionMinimum InvestmentMore Info
Family Investments Child Trust Fundno
£10.00 Per Month
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