14 May 2010 | Ian Bruce

What do Cameron and Clegg mean for Children's Savings? 

Millions of parents and prospective parents may have to re-assess the ways to save or invest for their children following the formation of the Conservative and Liberal Democrat coalition Government. In the new Government's efforts to reduce public spending and cut the nation’s large budget deficit there may be drastic changes to the Child Trust Fund, which will remove all except the lowest earners from those eligible to receive voucher payments for their children.

Whilst many parents may grumble about their children no longer qualifying for voucher payments, this should be viewed as a sensible decision. Recent research, reported in this Trust Online article, showed a large proportion of parents did not take the time to either open a CTF account or top-up their account with further investments. The likelihood is that the CTF accounts that received large top-up payments were mostly those of higher-earning parents looking to make the most of the CTF’s tax-advantages – just the group the new Government want to exclude from the CTF.

Some parents are concerned about the lack of control with a CTF. Once the child turns 18, they have unrestricted access to the money. Baillie Gifford conducted research on this topic a few years ago and it showed that, without a proper financial education, the chances are that a lot of this money would be squandered.

For parents wanting to save or invest for their child there will still be plenty of options. Banks and building societies still offer cash accounts for children and low-cost children’s investment plans can be started from as little at £25 per month.

What may be of more concern to parents, and investors generally, are proposed plans to raise Capital Gains Tax to a level more closely aligned to current personal taxation levels. This could mean an increase from the current 18% to 40% or 50%. We will keep a close eye on plans as they are announced and on the Emergency Budget due in the next 50 days.