Wednesday, 12 September 2018

Trust me, it’s not down the back of the sofa

Search down the back of any chair or sofa and you’re almost certain to find a coin hiding amongst the dust. That is unless you’ve consciously gone searching for a coin, in which case you’ll only find a broken pencil and an unwrapped boiled sweet in the detritus.
However, it is estimated that there are more than a million children born between September 2002 and December 2010 who, with a little searching, might find more than a coin or two. But, it’s definitely not down the back of the sofa.
Cast your mind back to 2002. Gordon Brown, then Chancellor of the Exchequer, was determined to give an incentive to encourage parents to start saving for their children’s futures. Given the size of deposits to rent, let alone buy, a home, this seems to have been extremely prescient.
Every child received a £250 voucher (£500 if the family was in receipt of Child Tax Credit) to put in a Child Trust Fund. Even if parents – or other relatives and friends – have not added a single penny saving in the interim, those who received the higher amount, because of growth and interest, might find that their accounts are worth as much as £2000 today.
Gordon Brown was very keen that children would establish a savings habit and build up a financial cushion to help them manage their money in adult life. Taking stock today, you can see how important that initiative was and how foolish it was for the Coalition government to end the scheme.
The share of income UK households save is now at its lowest 2017 since records began, as expenditure outstripped inflation-eroded pay over recent years. Earlier this year, the Office for National Statistics reported that the full-year household “saving ratio” fell to just 4.9 per cent in the year, down from 7 per cent in 2016, the lowest since 1963.
Meanwhile, the total household debt-to-income ratio rose again to 133 per cent and is still rising. The ratio had fallen steadily in the wake of the financial crisis, after peaking at 150 per cent in 2007, but has been rising again since 2015.
The Joseph Rowntree Foundation reports that six in 10 of the poorest fifth of households had no savings at all, while a further one in nine had savings less than £1,500. In other words, a relatively small thing – like the washing-machine breaking down and needing to be replaced – could be the genesis of real financial difficulties for a family. Without a small financial cushion to fund the essential replacement, families would be forced to resort to ludicrous-interest ‘payday’ loans or in to the arms of retailers and catalogue companies charging exceptionally-high interest rates.
Back to Child Trust Funds (CTF). More than 6 million accounts were opened, but official figures show that almost a million accounts are now classed as ‘addressee gone away’, meaning they’ve been forgotten about.
The amount in each account varies from about £320 to more than £2000, but it is known that a high proportion of the forgotten accounts had the higher initial deposit.
Luckily, it is fairly easy to track down your CTF. You have to make a request to HMRC via the website. This means you need a ‘government gateway’ ID, which can take a few days to set up, then you can submit your request. You should hear back within 15 days.
Once you’ve found your child’s CTF you have options, dependent on your child’s age. After 16, the child controls what happens, although they can’t withdraw it until they are 18. After 18, it is entirely up to the child to decide what to do.
Probably, the best advice you can give is for them not to go and blow it on a big party, although a small toast to Gordon might be appropriate.
Better to place it in a safe place - that’s not down the back of the sofa – providing the best return you can find and keep it there for use on that inevitable rainy day, preferably adding to it on a regular basis.