Child Trust Funds have been suspended to new customers by one of the UK’s biggest providers, The Children’s Mutual.
The decision to stop accepting new payments into CTFs comes after the Government decided to scrap the Child Trust Fund scheme, calling it costly and unnecessary.
Currently, the government provides a £250 voucher in the child's first year and the same amount again when a child reaches the age of seven, to be invested on the child's behalf until he or she turns 18.
If the child is born into a family where the annual household income is £16,190 or less, then the initial payment is £500.
But from 1 August, payments at birth will be reduced from £250 to £50, and from £500 to £100 for families with a low income. Further payments made when children reach the age of seven will stop.
Following this decision, the Children’s Mutual has decided that it is not financially viable to keep opening CTFs, which will only receive a £50 payment.
The Children’s Mutual has denied that the suspension, which they say is temporary, is related to insolvency issues and say the move will not affect existing customers, whose accounts will continue to run until their child turns 18. And the standard stakeholder child trust funds are still open for new business.
Chief executive David White told Radio 4's Money Box programme that the Government’s changes were more dramatic than it had anticipated: "What we weren't ready for was the rapid and unfortunate way in which the government is dismantling it (CTFs), in particular introducing vouchers for only £50 between August and the end of the year.
"We're now going to have a black hole for children's savings, we don't know what children's saving are going to look like.
"When we've worked out what we think the government is going to do, what we think the right plans are for the future, then we'll start spending money on sales and marketing activity again."
However, he did reassure existing customers that their money is safe until their children reach 18.
"We've had floods of calls into our call centres because the million customers we have worry their existing child trust fund is going to be scrapped.
"This is a good opportunity to reassure them that that money can be used, in fact they may end up having something which is unique for their children."
The Children’s Mutual said in a statemen that they will be taking time to reassess the children’s saving market and will return once they know more about the Government’s plans for the sector.
A spokesman said: “This suspension is temporary in order for the business to re-appraise the new and then post CTF market and to ensure the style and shape of activity it undertakes in a market that is no longer universal makes commercial sense. Members' and customers' interests must come first.”
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