The nation's parents need to save for their children's future, and now the Government has come up with a way to help them do it. From mid-January, parents of children aged up to 28 months will receive vouchers worth 250 as part of its new Child Trust Fund Scheme. The aim is to ensure that when today's toddlers reach the age of 18 they have a financial asset behind them.
Children born since September 2002 are eligible for a Child Trust Fund account if child benefit has been awarded for them and they live in the UK.
The savings and investment account scheme, which was first outlined by Chancellor Gordon Brown in his Budget in 2003, will get underway next month with a major press and broadcasting campaign. It will come into effect from the start of the next tax year in April 2005. Eligible parents will be sent Child Trust Fund information packs along with their vouchers.
Children in lower income families will receive an additional payment of Pounds 250. The Government has pledged to make a further CTF contribution when every child in the scheme turns seven. The exact amount of this sum will be confirmed in due course.
When families receive a voucher they take it to one of the six government-approved CTF providers, where it will be converted into cash and invested for the benefit of the child.
Each year, family and friends may contribute up to 1,200 to a child's CTF account. According to the family finance advisers, 4thekids, a fully funded CTF could be worth in excess of 25,000 at maturity, assuming Pounds 1,000 has been contributed annually for 18 years, and there has been an annual growth rate of 7 per cent and inflation of 2 per cent per annum.
Another way of growing the fund will be by using a cashback credit card linked to a CTF provider. The promoters of the iPledge card estimate that a typical couple could salt away 250 a year without actually changing their spending habits, simply by transferring all credit and store card spending as well as 40 per cent of cheque, debit card and cash spending and taking advantage of discounted online purchases.
Chris Davies, iPledge chairman, says, 'If parents can encourage the grandparents to make their spending work towards their children's future as well, the additional savings could grow to as much as 24,000 over 21 years.'
He says this type of switch in spending habits could prove invaluable for families, as by the time today's toddlers reach university, a three-year course will cost more than 30,000.
A child's CTF matures when he or she reaches 18 and gains unrestricted access to the accumulated fund. However, the Government hopes the money will be spent wisely on further education, training, setting up a business enterprise or a home, or will be reinvested.
Stephen Timms, financial secretary to the Treasury, has said, 'Our message to parents is that whatever your child wants to do when they grow up, the Child Trust Fund can help by making sure that they have some money behind them early in life. By giving parents and children the opportunity to save and giving each child a contribution of at least 250 to their CTF account, we will give all children a stake in the wealth of the nation and get children into the savings habit.'
To take account of the fact that children born before April 2005 will have had to wait a while until their parents could open their CTF accounts, they will get an extra start-up sum. The initial voucher for a child born between 1 September 2002 and 5 April 2003 is 277; for a child born between 6 April 2003 and 5 April 2004, it is 268; and for a child born between 6 April 2004 and 5 April 2005, it is 256. For children born from 6 April onwards it is the standard 250.
Parents or guardians have 12 months in which to open the account and invest the voucher; otherwise the Inland Revenue will do it for them. NW Further information
* Parents of eligible children will automatically receive an information pack giving details of what they need to do, and information will also be available on the dedicated CTF website www. childtrustfund.gov.uk and from a CTF helpline on 0845 3021470.