At a time when the country is being battered by storms and floods, our thoughts are with those who are suffering damage to what is likely to be their biggest asset; their home. Of course the weather is extreme and there is not much we can do to guard against the risk of damage. However, any home which is not well maintained, will suffer damage that may have been preventable.
Such a major event heightens our awareness and it is likely we have all had a look at the state of our property to see if damage has occurred or if we need to take some remedial action to prevent deterioration in its condition. However, in better times, we perhaps do not concentrate on this as much and it is the gradual, unseen and unnoticed decline that can catch us by surprise when an unforeseen incident takes place. Not so much as the flood, but more the dripping tap.
There is a lesson to be drawn from this with your existing Child Trust Fund (CTF).
The gradual deterioration that has taken place over a number of years is the success of Child Trust Funds which have been suffering a slow decline since Government stopped issuing £250 vouchers to newborn children two years ago; a sad relic of a wealthier time when the government could afford to hand out cash to new parents.
The money had to go into a CTF and would remain there until the child was 18, with the result that if parents did not choose where the CTF voucher should be invested after a year, the money was automatically put in a stakeholder fund with one of the panel of providers on the government’s list. Nearly 30 per cent of CTFs are in default stakeholder accounts because the parents did nothing with the vouchers a year after they were issued.
Added to that, there is scant competition for CTFs so there has been little opportunity to move to better CTFs. Those parents who chose investment or stakeholder CTFs may also have found relatively high costs and unpredictable returns in a volatile market – but have been powerless to do much about it.
Those with savings in Child Trust Funds have seen record-low interest rates and above-target inflation since the investment meaning cash savings losing real purchasing power over time – the dripping tap eroding the real value of their savings.
The analogy of a major incident is the Government’s decision to allow Child Trust funds to be transferred to Junior ISAs from April 2015.
The announcement does not mean the end of Child Trust Funds. They could continue to linger on even beyond next year, but now that these accounts are off the political agenda, it’s very possible that banks and building societies will follow suit, ditching good rates and focusing on junior ISA rates instead. With over 75 per cent of Child Trust Funds being stakeholder accounts, nearly all of which are invested in basic FTSE tracker funds, hundreds of thousands of children will remain stuck in a zombie scheme devoid of competition after this reform.
So perhaps the bad weather can also prompt parents to have a look at their Child Trust Fund to see what repairs are needed to combat the effect of the “dripping tap” and also what “maintenance” can be done to minimise any further damage that could arise from the major incident on the horizon, allowing transfers into Junior ISAs. As the Chancellor pointed out in his statement when making the announcement, “I’m delighted that as a result of these changes over 6m children who currently have savings in a Child Trust Fund will be able to benefit from better returns and lower charges on those savings in the future.”
Turn off the dripping tap eroding your Child Trust Fund and register your interest here today. Visit www.thechildrensisa.com to see which Junior ISA is right for you.
If your account was allocated by the revenue and you do not know which provider it is with you can locate the child savings accounts using the government web service found by visiting the following link:
With Child Trust Fund to Junior ISA transfers being allowable from next April, now would be a great time to give your child savings a health check. Ask the provider questions such as ‘How has my Child Trust Fund Performed?’ and ‘What risk am I taking?’.