Plans by the Conservatives to cut Child Trust Fund (CTF) contributions for better-off families have been criticised by Family Investments.
In a speech to the Conservative Party conference, shadow chancellor, George Osborne, while announcing plans to "restore our savings culture" also revealed proposals to limit Government contributions for Child Trust Funds to poorer families.
Launched in 2002, the Child Trust Fund is a savings and investment account that can be opened by family and friends, and provides a fund for the child that can be withdrawn when they turn 18. Currently, eligible children receive a £250 voucher from the Government to kick-start their account, while an additional £250 is handed out when the child is seven years old.
Under the new proposals, these contributions will be limited to children in poorer families, which Family Investments has criticised, stating that Child Trust Funds were designed to provide all children with a financial head start in life.
Research by the Child Trust Fund provider has revealed that nearly a third of all Child Trust Funds accounts receive regular top-ups, with an estimated two million parents and relatives adding £22million a month to Child Trust Funds.
In addition, Family Investments has found that 96 per cent of parents with a Child Trust Funds believe it is a good idea and has provided an effective encouragement for them to save for their children.
However, John Reeve, chief executive at Family Investments has warned: "Without the nudge to action created by the CTF there is a danger these positive trends will be reversed. There is also a danger that those who still receive CTFs will be less inclined to make additional savings if any new Conservative government is not committed to ensuring they engage with the scheme."
Mr Reeve continued by stating that the Conservative's plans lack clarity over which families it will effect.
"Whilst saying they are only planning to cut government contributed CTFs for the better-off, the plans they have announced so far will mean any family earning more than £16,040 a year will not receive one.
"This means that it will be hard-working, low to middle income families who will be really hit by the cuts. These are exactly the kind of families who may want to save for their children's future but need the help and encouragement to do so," he said.
© Fair Investment Company Ltd
