The man who wants to save child trust funds

A campaign is growing to save child trust funds from the scrap heap. Do you think parents and family should be allowed to continue saving into the schemes for children, even if the government stops handing out free money?

Fight on his hands

Martin Shaw, chief executive of the Association of Financial Mutuals, is among those fighting to save child trust funds (CTFs) from extinction.

AFM is a trade body representing mutual insurers, such as Family Investments and the Children’s Mutual, that provide over half the CTFs that have been taken out by parents since 2005.

In May Shaw and the insurers were shocked to hear the government announce it wanted to abolish CTFs as a first step to slash public spending and reduce the budget deficit.

This move signalled the start of ‘austerity Britain’ and divided opinion. While some welcomed the cut for removing one example of wasteful spending by a ‘nanny’ state, others complained it was axing a genuinely good idea by the previous government.

What are child trust funds?

Labour launched child trust funds five years ago, giving parents of new-born children vouchers for £250 with which to save into the new accounts. The plan was to give parents another £250 when the child reached seven years. Children from poor families received an extra £250 – £500 in total – at each stage.

The plan was for the savings to grow free of income and capital gains taxes until the child was 18. At this point the money could be rolled into an individual savings account (ISA) and continue to accumulate tax free, or provide a nest egg to pay for university fees, put towards a deposit or blow on a gap year – anything that the young person wanted to do.

Shaw and AFM have joined the Save Child Savings Alliance (SCSA) to convince the government to retain child trust funds even if it removes the subsidies to save around £500 million.

They argue child trust funds have been successful in helping restore a savings culture in Britain. They say that:

• 5 million children now have a child trust fund and
• 40% of accounts are topped up by additional contributions from parents and relatives

Hope of reprieve

After a recent meeting with Mark Hoban, financial secretary to the Treasury, Shaw is hopeful the message may be getting through.

Although the government is desperate to save money it has spoken of its wish to ‘reinvigorate’ pensions and long-term savings. It may decide to allow parents to continue contributing up to £1,200 a year into existing CTFs and open new accounts for their children, all with the benefit of tax relief.

Last month Hoban created an opening when he announced that the government was considering launching a range of simplified financial products to encourage the nation to save.