Inflation means Child Trust Funds are short-changing kids

22 August 2008 / by Rachael Stiles
Inflation could be diminishing the benefits of Child Trust Funds, because the interest on them does not rise accordingly with inflation.

More than three and a half million children have already benefitted from the Government's

Child Trust Fund (CTF) scheme, whereby each child that was born after September 1 2002 receives a £250 voucher.

Parents can then add to the fund so that by the time they reach 18 the child has a considerable lump sum, to put towards university, or buying their first home.

But, according to CFT provider and retail stockbroker The Share Centre, the UK's children would benefit a lot more from the scheme if it was index-linked, to prevent high rates of inflation from eating away at their nest eggs.

Inflation is currently at 4.4 per cent, more than double the two per cent target that the Government has set, and a lot higher than it was when the CTF scheme was launched in 2005 when the government topped up the funds to allow for lost growth, so today's newborns are at a distinct disadvantage.

Guy Knight, group sales and marketing director at The Share Centre, said: "While it is great that children are given this financial start in life, it is not fair that children born today will get £145 less after inflation than their predecessors in the course of the scheme. We calculate babies born today should receive £288 to give them the same start in life as babies born on 1 September 2002.

"If you forecast the difference over the child's 18 years, the Government could be looking at a shortfall of over £97 million a year for newborn babies."

Mr Knight continued to say that if the idea of CTFs is to provide children with a good financial start in life, then it seems "short-sighted" of the Government to hinder the potential of this investment for future generations, and he urges the Government to "reconsider the limits and keep them in line with inflation so that every child has a fair and equal starting point for their investments."

© Fair Investment Company Ltd