Business

Children's Mutual stops some new Child Trust Fund business

Child putting money in piggy bank
Image caption The Children's Mutual is currently considering its options

One of the largest providers of child trust funds has stopped taking new business on all but its most basic CTF accounts.

The Children's Mutual has stopped opening with profits, growing up bond and non-stakeholder child trust funds.

The standard stakeholder child trust funds are still open for new business.

They track the prices of shares sold on the stock exchange.

Funding cuts

The move will not affect existing customers, whose accounts will continue to run until their child turns 18.

The decision came after the government announced it would cut the payments into Child Trust Funds next month and stop new ones opening from January.

From 1 August, payments at birth will be reduced from £250 to £50 for most families, and £500 to £100 for families with an annual household income of less than £16,190. Payments when children reach the age of seven will stop.

No new Child Trust Funds will be opened for children from 1 January 2011.

Radical changes

The Children's Mutual says it will reconsider its position in two months.

Its chief executive David White told Radio 4's Money Box programme although the mutual had been expecting changes, they were more dramatic than it had anticipated:

"What we weren't ready for was the rapid and unfortunate way in which the government is dismantling it, in particular introducing vouchers for only £50 between August and the end of the year.

"We're now going to have a black hole for children's savings, we don't know what children's saving are going to look like.

"When we've worked out what we think the government is going to do, what we think the right plans are for the future, then we'll start spending money on sales and marketing activity again."

Customers reassured

He added that the money invested by existing customers was safe:

"We've had floods of calls into our call centres because the million customers we have worry their existing child trust fund is going to be scrapped.

"This is a good opportunity to reassure them that that money can be used, in fact they may end up having something which is unique for their children."

At present, the government provides a £250 voucher in the child's first year and the same amount again when a child reaches the age of seven, to be invested on the child's behalf until he or she turns 18.

If the child is born into a family where the annual household income is £16,190 or less, then the initial payment is £500.

Call for action

Parents, family and friends can contribute up to £1,200 a year to the account, with no tax to pay on any income or gains in the account. This money is often invested in shares.

David White said there was still action the government can take to encourage a savings culture in preparation for when their children come of age.

"We're pressing the government to essentially fill the black hole. The most sensible thing to do would be to use the existing infrastructure by and make the most of it by keeping voluntary contributions open. Give people a nudge, it's a nudge that works," he said.

Asked if the Children's Mutual would survive the demise of Child Trust Funds, David White said it would make the necessary changes:

"We've got to decide what new products we put on the market to help what will be a smaller market."

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