In an unexpected attack on savings for children, the government has announced that the Child Trust Funds Scheme is to be completely scrapped in a phased move from August 2010.
Based on previous statements and on information gleaned from the Conservative pre-election manifesto, it had been expected that the Child Trust Fund Scheme would survive in a much-reduced form, available only to a third of the nation’s families, those with household income of less than £16,000 per year.
Payments to children under the Child Trust Fund Scheme will be phased out from August this year, and end completely on 1 January 2010.
It is not yet clear to what extent the companies managing existing Child Trust Funds will be able to continue, given this shock move by government, which is just one of a range of government cuts announced this week. The scheme had been widely regarded as the most successful initiative to encourage children’s savings in the history of the state.
Under the Child Trust Fund Scheme, all children born on or after September 1 2002 received a money voucher from the government to set up a Child Trust Fund. This was designed to give every child a nest egg, to which they would have access when they turned 18.
The original Child Trust Fund voucher was worth £250, or £500 if the parents were on a low income and qualified for the full child tax credit. At the age of seven, families received another £250 payment for children’s savings, or £500 if the family qualified for the full child tax credit. This second payment was paid directly into the Child Trust Fund account.
In justifying this apparent move against savings for children, the Government claimed that while the Child Trust Fund Scheme provided savings for children, in fact it was adding £520m to the public spending bill, which those same children would, at some stage, have to repay.
The decision to axe the Child Trust Fund Scheme is part of a round of government cuts, part of the new government’s strategy to tackle the national public deficit of £156bn.
