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15 August 2019

Child Trust Funds: what next for firms as CTFs start to mature?

Guy Munton

Guy Munton
Partner | Regulatory Compliance / CASS SME | London

Daniel Plimmer

Daniel Plimmer

Child Trust Funds (CTFs) have quickly become a talking point in the industry over the last 12 months.

For CASS small firms currently holding CTFs, the threshold for becoming a CASS medium firm could potentially be exceeded through the increased activity of the beneficiaries as they reach the age of 18.  This would bring additional regulatory requirements into scope including the monthly Client Money and Assets Return (CMAR), and the appointment of an individual with overall accountability for CASS.  If your firm holds some of the estimated £1bn in dormant CTF accounts then you will need to make a decision on your plans to continue to hold these assets.

History of CTFs

Launched by the Government of Tony Blair back in January 2005 the State put an initial cash sum into each CTF via vouchers (some received a top up payment as well) and allowed parents to invest an annual allowance into the fund. Some products offered a cash savings type account and others the opportunity to invest, for example in funds. The scheme was closed to new entries in January 2011.

The funds are held in trust for the child until they turn 18, at which point the money is theirs to use as they see fit. With the annual investment allowance from parents and capital growth CTFs can easily be worth tens of thousands of pounds per child by now.

Where parents chose not to invest the voucher the Government did so on their behalf. Estimates suggest that there are more than 1m dormant CTF accounts opened after birth containing just the initial Government voucher. It has also been reported that the Government has lost track of the owners of some of these accounts with a value approaching £1bn.

Every child born on or after 1 September 2002 was eligible (subject to conditions), hence the first recipients will soon be turning 18.

These two ends of the spectrum provide both opportunities and potential challenges for impacted firms to consider:

  • Enticing young investors to re-invest large cash sums rather than simply make withdrawals, perhaps with investment products that are appealing to 18 year olds.
  • Alternatively, what are the potential impacts of a sudden spike of people withdrawing cash?
  • Do the impacted firms have the capacity in call centres, and via other channels, to deal with an increase in customer contact?
  • For those where the Government invested, what will be required in terms of servicing the high numbers of dormant accounts?

If you would like to discuss this further please contact us, we are keen to understand more about this situation.