11 Jun 2010 | James Budden

Crocodile Tears for the Child Trust Fund 

 The coalition partners had made it clear that the CTF was on their respective hit lists prior to the election, so it was no surprise to see new accounts abolished beyond January 2011.

What is a surprise is that providers such as The Children’s Mutual and Family Investments should be so surprised. Both companies have based their business models on providing CTFs so they have been vociferous in their dismay at the new government’s actions. A case of howling at the moon.

The two investment trust CTF providers F&C and Witan, have been more dignified in their response. However, both to varying extents, have been left with a legacy of CTF plans to look after. In F&C's case this may prove quite expensive. Their CTF shares account proved very popular but no income is forthcoming from the plans as they were offered free of charge to customers. On the other hand Witan manages a few thousand plans and mitigates cost through an annual charge.

A good deal of hot air has been puffed out about the demise of the CTF – mostly from the Mutuals. Taking benefits from the disadvantaged, discouraging saving for kids, robbing our children of a decent future – all these claims have been voiced during the last few weeks. None have any real basis in truth.

At best the CTF offered tax efficiency but that was limited to £1,200 pa. The government’s donation was a mixed blessing. The voucher system obviously forced parents to limit investment choice to CTF products, the majority of which had modest underlying investment engines (F&C and Witan excepted). The few self select options were hideously expensive. In fact the CTF may have done savers a disfavour by shutting their eyes to other options.

Many thousands of people have been saving for children very successfully over the years before and during the CTF period especially through investment trust savings plans. Save through a bare trust and the tax efficiency can be on a par to that enjoyed by the CTF but without the restrictions on amounts invested. In many cases these plans are cheaper (Baillie Gifford offers a Children’s plan free of initial or annual charges*) and the underlying investment choice considerably better. So as Shelley put it “fear not for the future, weep not for the past”. 

*Other charges include the dealing price spread, and stamp duty costs of 0.5% on purchases. The investment trusts also incur costs in managing and administering their portfolios (including dealing costs).

Please remember that, as with all stock market investments, the value of your investment can go down as well as up and you may not get back the amount originally invested. You also should note that tax rates and reliefs may change at any time and their value depends on your circumstances.

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