Welfare Rights – Savings Stimulus

Anew investment account designed to encourage parents to save
money for their children starts in April. The government is
introducing the Child Trust Fund, (CTF) to help build up a “nest
egg” for these children when they reach 18.

The government will make two payments to the account. The first
payment of £250 or £500 will be made shortly after the
child is born and the second, when it reaches the age of seven. We
don’t know yet what the second payment will be. Children born
between 1 September 2002 and April 2005 will get slightly more than
£250, to compensate them for the delay in setting up CTFs
since they were announced in 2002. Families and friends will also
be able to contribute to the child’s account, up to a maximum of
£1,200 per year.

Government payments will take place via vouchers. Because children
will be identified from child benefit records, the Inland Revenue
will be making the payments. Families who are prevented from
claiming child benefit because of their immigration status will
also be denied CTF payments. Children who are looked after by the
local authority will still be eligible, however, even though child
benefit is normally suspended when a child goes into care.

If a child is eligible, a voucher worth £250 will be sent to
the person who has claimed child benefit. Children from families in
receipt of child tax credit with an annual income of less than
£13,480 will receive an extra voucher worth £250. This
creates another reason to promote tax credits for low-income
families. Many families on income support and jobseeker’s allowance
have yet to be transferred onto child tax credit because of the
Inland Revenue’s computer problems, yet they should still be
entitled to the full £500. Looked-after children will also
receive £500 payments in their accounts.

All parents with “qualifying children” should have been sent
information about CTF in December, and the first vouchers should be
sent to parents between January and March. There is no need to make
claims for looked-after children who are eligible, as the Inland
Revenue has promised it will open “stakeholder” accounts on their
behalf. However, local authorities will have to give details to the
Inland Revenue of all eligible looked-after children.

Most high street banks and building societies will be offering CTF
accounts, as will several friendly societies. Parents or other
carers will have to decide which account to open and with which
provider, from an Inland Revenue list and some parents may come to
you for advice. Some accounts will be secure “savings” accounts
while others are based on investments in shares. Over the long
term, the latter may be a better bet. However, you should not give
this kind of advice – unless you are an independent financial
adviser registered with the Financial Services Authority.

The CTF is not taxable, and won’t be taken into account for any
benefits the family may claim. Money in the CTF belongs to the
child, and they won’t normally be able to access the money until
they reach 18. However, children who are terminally ill can access
their CTF
earlier.

For more information about CTFs, contact the Inland Revenue child
trust funds helpline on 0845 3021470 or visit www.childtrustfund.gov.uk

Gary Vaux is head of money advice, Hertfordshire
Council. 
He is unable to answer queries by post or telephone. If you have a
question to be answered please write to him c/o Community Care