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Rethink required on CTF wind-down

28th May 2010 Print

The phased withdrawal of Child Trust Fund vouchers announced this week by the new coalition Government needs to be reconsidered, according to F&C's Head of Corporate Affairs, Jason Hollands.

Under the proposals, CTF vouchers will be reduced from £250 to £50 (and from £500 to £100 for low-income families) for children born between August and the end of the year, before being stopped altogether from 1 January 2011.

But given the costs of administering the plans, reducing the vouchers to a single contribution of £50 could create an environment where providers are reluctant to open accounts because they would be uneconomic to run, a situation that would be exacerbated by the need to reprint literature. Furthermore, the value of a £50 voucher is questionable, as at a compound 6% growth a year it would only grow to £142.72 by the child's 18th birthday if no further investments were made.

"We have always maintained that the real value of the CTF is not in the initial voucher, but the ability for parents, family and friends to top up the accounts tax-free," said Hollands. "However, we need to seek clarification on these new proposals, which for the sake of four months could see providers forced to open accounts that will probably cost more to administer than they could ever produce in growth if they were not topped up.

"The Government's intention seems to have been to avoid an arbitrary cut-off point whereby a baby born a couple of days late could lose out by as much as £500, but actually there are significant costs involved not just for providers but also for the Government, which will have to change all its own CTF literature. We think that if the vouchers must go, a cleaner cut-off for vouchers makes sense." Hollands added.