Government spending cuts announced today spell the end of child trust funds (CTFs). Payments at birth will fall to £50 from 1 August 2010 and stop altogether from 1 January 2011. The government has estimated that the cut could save £320m.
Payments cut for 2010
Currently, all new-born children receive a voucher for £250 to open a child trust fund (CTF) account. The money can be invested in a cash CTF, a stakeholder CTF or a shares-based non-stakeholder CTF. From 1 August 2010, the government will cut its initial contribution to £50. For low-income families, payments at birth will be reduced from £500 to £100.
Disabled children will still receive the £100 promised by the previous government for 2010 and severely disabled children will receive £200.
At 7 years old, all children currently receive a further government contribution to their CTF account. These will cease from 1 August 2010.
Payments ended from 2011
From 1 January 2011, all government contributions to CTFs will cease. Payments that would have been made to disabled and severely disabled children will be redirected to other forms of support.
Tax-free saving for children
The immediate future of existing CTFs is unclear. At the moment, they are tax-free savings accounts into which parents, friends and relatives can contribute up to £1,200 each year.
Other tax-free investments for children include NS&I Children’s savings certificates and premium bonds.
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