The Child Trust Fund Reaches its Second Birthday

By: Nationwide

But children are still losing out on a potential £7.5 million in the first 12 months

The Child Trust Fund recently celebrated its second birthday yet the latest Government figures showed that nearly a quarter of all Child Trust Fund (CTF) vouchers issued were not invested by parents within the 12 month time frame. Nationwide Building Society is calling on the Government to do more to encourage parents to invest their child's voucher sooner, so children do not miss out on significant interest or investment growth.

As at December 2005 about 2.2 million vouchers were issued, yet only 1.66 million of these were invested meaning 25% of vouchers had expired and those children have missed out on 12 months of interest or investment growth. Collectively these children have missed out on £7.5 million pounds or approx £14 per child over 12 months with these figures rising to £19 million or £35.30 per child over the 18 year term as their investment has been reduced to only 17 years.

By December 2006, almost 2.95 million vouchers had been issued by the Government, but only around 2.1 million of these have so far been invested by parents meaning that the vouchers of around 850,000 children are either expired or have yet to be invested.

In December 2006 Nationwide published the findings of research on the attitudes of MPs to CTF. 92% of Labour MPs felt that the Government should take measures to increase early take-up of CTF vouchers to ensure that children did not miss out on interest on, or growth of, the Child Trust Fund. Waiting 12 months before automatically investing the money for parents who take no action means these parents' children are losing out on a whole year's interest or growth in their fund.

Matthew Carter, Nationwide's divisional director mortgages and savings , said: "The Government needs to do more to encourage parents to invest their child's voucher as soon as possible and certainly before the 12 month expiry period otherwise, through no fault of their own, it is the children who are losing out on interest or investment growth.

"Parents need to recognise the urgency in presenting their child's voucher for investment to ensure their children receive the full 18 years worth of interest or investment growth that they are entitled to and not a year less. The Government has said that its aim is to entrench a culture of saving for people of all ages. However, they still need to get a quarter of parents on side and in doing so could make a real difference to so many young people, giving them a nest egg to start their adult lives."

For further information:

Sue Knight, media relations manager, telephone: 01793 655196 email: sue.knight@nationwide.co.uk
Steve Blore, senior manager, telephone: 01793 655199 email: stevew.blore@nationwide.co.uk

Notes:

• Nationwide offers both cash and equity Child Trust Fund (CTF).
  Nationwide's equity CTF:
  • is a unit trust based investment that aims to increase in value by tracking the performance of the FTSE All-Share through the Nationwide Tracker Fund
  • is a Stakeholder fund, so it has low charges and further contributions can be made from just £1
  • is flexible, so customers can invest as and when it suits them, subject to annual allowances
  Nationwide's Cash CTF:
  • is a tax-free savings account paying a variable rate of interest. As it is a savings account, it is secure – children are guaranteed to get back every penny invested, plus interest and any bonus paid
  • currently pays a competitive rate of interest of 5.55% AER, or 6.55% if £240 or more is paid in each year (excluding Government contributions)
  • guarantees to pay at least 1.30% (including conditional bonus) more than the Bank of England Base Rate until 1 January 2010

  Cash CTF	AER*	AER	Gross p.a.
  £1 and over	6.55%	5.55%	6.55%

  *Including additional bonus of 1.00% gross p.a. which will only be paid if £240 or more is paid in to the account each year. This does not include Government contributions.

• Case studies are available, please contact the press office
• Child Trust Fund figures used as published by the Government in March 2007 can be found at http://www.hmrc.gov.uk/stats/child_trust_funds/ctf-mar07.xls
• As at December 2005, 2.193 million vouchers had been issued of which 1.656 million had been invested. Leaving 25% or 537,000 Child Trust Vouchers expired
• If a Child Trust Fund (CTF) account is not opened before the expiry date on the voucher then HM Revenue & Customs (HMRC) will open an account on their behalf. HMRC will open a stakeholder CTF account for the child and will advise the parents which provider the account has been opened with. Parents can change the account to another type of account or provider if they wish.
• The Government's own research indicates that 98% of eligible parents are aware of the Child Trust Fund ( www.hmrc.gov.uk/ctf/statistical-report-2006.pdf )

  Calculations:

• Assuming a £250 voucher is deposited into a cash CTF at the first opportunity, allowing for the age 7 top up and no other contributions being made, after 18 years the value of the investment would be £1,113.86 (calculations assume an interest rate of 5.55%)
• Nationwide calculates that through not investing the voucher straightaway £13.88 is lost in interest during the first year and by the time the CTF matures this lost interest will increase to a total of £34.76 calculations assume an interest rate of 5.55%)
• Assuming a £250 voucher is invested in to an equity CTF at the first opportunity, allowing for the age 7 top-up and no other contributions being made, after 18 years the value of the investment would be £1,128.47 (calculations assume a projected growth rate of 7% and include a management charge of 1.5%)
• Nationwide calculates that through not investing the voucher straightaway £14.10 is lost in growth during the first year and by the time the CTF matures this lost growth increases to a total of £35.84 (calculations assume a projected growth rate of 7% and include a management charge of 1.5%)

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