Thousands of teenagers missing out on Child Trust Fund cash

HMRC is urging young people to check if they have a surprise savings pot in the shape of a Child Trust Fund (CTF), the government savings scheme for children

The average value of a CTF account was £1,500 in 2020 and although this is not the minimum or maximum amount in each account, this is a sizeable contribution to any teenager’s savings.

It is now one year since the first account holders started turning 18 and around 55,000 CTFs mature every month. This means their owners can withdraw funds or transfer savings into an adult ISA. Hundreds of thousands of accounts have been claimed so far, but many have not.

CTFs were set up for all children born between 1 September 2002 and 2 January 2011 with a live child benefit claim. Parents or guardians set up these accounts with child trust fund providers –usually banks, building societies or investment managers – using vouchers provided by the government. If an account was not opened by the child’s parent, HMRC set one up on the child’s behalf.

Between 2002 and early 2011, about six million CTFs were opened by parents or guardians, with a further million set up by HMRC.

Economic secretary to the Treasury, John Glen, said: ‘It’s fantastic that so many young people have been able to access the money saved for them in Child Trust Funds but we want to make sure that nobody misses out on the chance to invest in their future.

‘If you’re unsure if you have an account or where it may be, it’s easy to get help from HMRC to track down your provider online.’

Some young people may not know they have a advice and guidance to local businesses and sole traders for more than 25 years.

CTF – or some parents or guardians may have forgotten who they set the account up with. To help them find their accounts, HMRC has created a simple online tool.

Any young people unsure about whether or not they have a CTF should first ask a parent or guardian if they remember setting one up. Once they know who their provider is, they should contact them directly – and either request to withdraw the money or transfer the funds into an adult ISA or other savings account.

For those who cannot access the tool, HMRC will provide alternative, non-digital routes to finding a CTF provider upon request. HMRC will send details of the provider by post within three weeks of receiving their request.

Where there is no person with parental responsibility available to manage the CTF, the account is managed on the child’s behalf by a charity, the Share Foundation.

The accounts were set up to encourage positive financial habits and a saving culture among the young account holders. HMRC is working with the Money and Pension Service (MaPS) and the CTF providers to continue to provide financial education to the beneficiaries.

At 16 years, a child can choose to operate their CTF account or have their parent or guardian continue to look after it, but they cannot withdraw the funds. At 18 years of age, the CTF account matures and the child is able to withdraw money from the fund or move it to a different savings account.

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Contact Mark Baker 020 3044 2747 07909 703463 Email: markbaker@mbaccountancy.co.uk

Contact Mark Baker 020 3044 2747 07909 703463 Email: markbaker@mbaccountancy.co.uk

You have several choices regarding taking money out of your workplace or personal pension. This includes taking cash as a lump sum or drawing a regular income. This latter option, known as income drawdown or pension drawdown, brings more flexibility but also more risk.

Most people will be in a ‘defined contribution’ scheme (we are not covering ‘defined benefit’ schemes – also known as ‘final salary’ – in our tips here). This takes the money you and your employers put into the scheme and invests it, producing a pot of money called a pension fund. You choose how to use this fund.

The traditional approach is to use your pension fund to buy an annuity. An annuity will pay you a fixed sum until you die, with that amount dependent on your health and age. The cost of annuities and payments from them haven’t offered best value in recent years, sparking an interest in other options.

That’s where pension drawdown comes in. Put simply, you take some of the money out of the pension fund and leave the remainder of the fund invested to (all being well) continue growing. You can take up to 25% of your pension fund as a lump-sum payment, which will be tax-free. Alternatively, you can take a regular income from the fund, with 25% of each payment tax-free and the rest counting towards your taxable income. The main advantages of pension drawdown are increased flexibility and a potentially bigger income than you’d get from an annuity. The main disadvantage is that your pension fund could run dry before you die, leaving you reliant on just the state pension.

Remember also that any money left in the pension fund remains subject to investment performance. Ideally it will grow, perhaps even by enough to cover the money you take out, but it’s possible the fund will decline.

You can use pension drawdown from age 55 (rising to 57 in 2028), even if you are still working and still contributing to the pension. You’ll need to watch out for rules against ‘pension recycling’, which is intentionally taking money out of a pension fund and then putting it back in to try to get tax benefits.

Once you take any money out of a pension fund, your future tax-free contributions (including those from your employer) are capped at £4,000 a year. If you pay in any more than this, the money will count as part of your taxable income. Not all pension providers offer a pension drawdown option, but you can switch your pension fund to one that does. Most providers who offer pension drawdown can offer advice and managed options to help you achieve specific goals. Remember that while you still have a pension fund open, you’ll need to pay management charges.

You should always take expert advice before making any pension decisions. One good option is a free Pension Wise review from MoneyHelper, an independent government-backed organisation.