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

    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
    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

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