More than a quarter of Child Trust Fund accounts with an average value of £1,911 remain unclaimed a year after maturity.
Child Trust Funds (CTFs) were tax-free children’s savings products introduced by the Labor Government in 2002 before being phased out for new customers in early 2011.
The government paid more than £2 billion in CTFs for 6.3 million children born during this period.
As more young people with a CTF turn 18, an increasing number can access their accounts.
However, more than a quarter of CTFs have remained untouched for a year or more after their owners turned 18, according to the National Audit Office.
Forgotten savings: A CTF is a tax-free long-term savings account for children born between September 1, 2002 and January 2, 2011, which they can access when they turn 18
Separate research has found that almost a fifth of UK adults, rising to 36 per cent of those aged 18-34, believe they have lost a CTF, or that a CTF set up for the benefit of children or grandchildren has become inactive.
The research from Gretel, an online service that reconnects people with lost and dormant accounts, estimates that there are more than £2.2 billion in lost or dormant CTFs.
Myron Jobson, senior personal finance analyst at stockbroker Interactive Investor, said: “The NAO’s investigation of CTFs exposes the high level of apathy for the account.
The NAO apparently regrets the fact that it is almost impossible to determine how many people have lost track of their investments in CTFs due to a lack of available data.
“The fact remains that it is the job of parents or guardians and now adult children to track down a lost CTF.”
What are Children’s Funds?
As with the current Junior Isa, the idea was to help parents and guardians set aside money for their children to help them grow up.
Parents and guardians were given vouchers which they could then place with a CTF provider, normally a bank or building society.
This included two £250 vouchers, one on the child’s birth and one when the child turned seven, or two £500 vouchers for low-income families.
If parents have not placed these vouchers with a CTF provider, the government automatically puts the money into a CTF provider on behalf of the child.
The Court of Audit found that CTFs are in danger of being forgotten or lost sight of by account holders
Of a total of 6.2 million CTF accounts, 1.8 million were opened in this way by HM Revenue & Customs.
Laura Suter, head of personal finance at investment firm AJ Bell, said: “Many parents and children don’t even know they have the account, or don’t know who the money belongs to or how to track it down.
“More than a quarter of the CTF accounts were set up by the government because parents did not do so within the 12-month period.
“This shows why so many go unclaimed — because the parents didn’t know or won’t remember that an account was even opened for their child, let alone where the money is now.”
£100m CTF provider fees hurt returns
It is also feared that many CTF providers are charging huge amounts to manage CTFs, eating away at the funds available to account holders.
The National Audit Office estimates that CTF providers – including banks and building societies – could collectively earn up to £100 million a year through account write-offs.
Adds Suter, “Many of these bills have very high fees, meaning unclaimed providers are making huge amounts of money all the time eating up the capital.
The report estimates that CTF providers take £100m from depositors annually, a figure that will rise as accounts rise in value.
‘That means that an average of 1 percent per year is levied on the funds.’
How do you find a lost account?
People don’t necessarily need their provider to track where a CTF is located.
They will need to complete an online form to ask HM Revenue & Customs where the account was originally opened – although they will need to create a Government Gateway user ID and password if they don’t already have one.
Any parent looking for a CTF they have set up will need the child’s unique reference number, which can be found on the annual CTF statement, or their child’s social security number.
If someone is looking for their own CTF, they should have their social security number handy.
An easier way for individuals aged 16 to 18 to possibly find their account is through charity Sharing foundation.
Another option is to try Gretelthat reconnects people with lost and dormant accounts in all areas of the financial services industry.
Young people and their parents can request information about their Child Trust Fund from HM Revenue & Customs online
It now claims to cover nearly half of the CTF market.
What to do with CTF money
Once the CTF has been tracked down, the next step is figuring out what to do with the money.
Some may need it to combat living expenses, while others may want to save or invest elsewhere.
“Once you track down the money, you can figure out what you’re going to do with it,” says Suter.
‘For many people it will make sense to switch to a Junior Isa, where the costs are probably lower and you have a much wider choice of investments.
‘If you transfer the CTF you have to transfer the entire amount to a Junior Isa, you cannot have both types of accounts open at the same time.
‘But it is handy that the amount you transfer does not count towards your annual Junior Isa limit.
‘This means you can transfer the entire CTF to a Junior Isa and still add £9,000 to it in the same tax year.’
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