Future Savings - UK Child Trust Funds Four Years On

Since the launch of Child Trust Funds (CTFs) four years ago, new data from HM Revenue & Customs shows that over one million families have not opened one, despite the financial incentive to do so. So why have so many new parents failed to open CTFs?

CTFs were established in 2005 to ensure that every child would have a significant amount of savings in place by the age of 18 - which they can then put towards a new car, gap year travel - or anything else they wish to do so. Eligibility is dependent on a few factors. Firstly, a child must be born on or after the 1st September 2002. Secondly, they must have been awarded child benefit. They must also live in the UK and not be subject to immigration controls.

When a CTF is opened, the UK Government gives a voucher worth 250 pounds to open the account, and another 250 pounds should the child be considered of a low income family. This donation is repeated when the child reaches seven, and may also again at age 11. Subsequently, 1st September 2009 is the date many seven year old children will see their second donation. Yet, as Sam Dunn of The Observer argues, this is likely to be overshadowed by the fact that so many parents haven't bothered to start up a CTF.

Despite the relative simplicity of the CTF scheme, according to Children's Mutual the reason their take-up hasn't been so positive is because parents simply 'don't get round to it' and they are 'overwhelmed by all the information'. However for those who have 'got round to it', reports are already hitting the media highlighting how some children are set to benefit from 10,400 pounds savings as soon as 2020 - assuming that their parents contribute 25 pounds a month.

Once the account matures when a child turns 18, the UK Government have also highlighted that the money doesn't have to be spent, and can in fact be placed into an ISA. Despite this, it must be stated that not everyone considers CTFs to be a good thing, with Liberal Democrat MP, Philip Willis, referring to the scheme as 'expensive, unnecessary and locks up much needed resources, which could be better spent on ensuring life-long education.' However, we are no doubt sure to see more opinion on the matter over the coming months and years.

Paul Roberts writes about finance, savings, trust funds and best savings rates.