Draft proposals for the Child Trust Fund published yesterday reveal the government has changed its mind on several points, such as how much will be contributed from the public purse, and who may be eligible to contribute to CTF accounts other than immediate family members.
The basic sums involved have not changed. The government is still offering £250 to all children born after 31 August 2002, with an additional £250 to children from the poorest families.
However, the government has added a schedule outlining specific additional payments to children born at various times after 31 August 2002 up until the day CTFs become available in 2005. This takes account of the fact children have had the right to claim CTF contributions even though such accounts are not yet available.
The Revenue's table shows children born before the CTF's launch will receive a higher first contribution, depending on when they were born.
Total annual subscriptions remain at the £1,200 level previously proposed, but the rules will now allow contributions from people not resident in the UK, such as grandparents living in other countries, and will allow contributions in European Economic Area currencies other than sterling.
Proposals also depart from previous drafts in that subscriptions would be allowable from organisations, businesses, community groups, charities and local authorities – in addition to family and friends.
The government is keen to ensure accounts provide adequate diversification of investments to ensure risk is reduced. It also wants account providers to ensure “lifestyling” of accounts. This means reducing exposure to higher risk investments as of the child’s 13th birthday, such that when they hit 18 years of age, there is a cash sum available to withdraw.
There are to be two kinds of account, stakeholder and non-stakeholder, and the difference becomes important with regards to the investment objective when the CTF matures on the child’s 18th birthday.
An opt-out can be had from the lifestyling rule, if it is the intention to continue holding the investments in a stakeholder account beyond the 18th birthday, rather than withdrawing a cash lump sum.
Unless specifically instructed on this issue, providers should automatically assume they are building a cash lump sum for the child, and thus will be required to shift accounts towards less risk over time.
The rules are otherwise fairly wide in terms of asset selection, although some restrictions apply to shares in investment trusts. Providers of closed- end funds must satisfy CTF conditions including a requirement the shares are listed on the Official List of the London Stock Exchange.
One issue that has already drawn reaction from providers is the price cap of 1.5%, which is being seen as a reversal of the government’s previous commitment to a 1% cap in line with existing Stakeholder rules.
First mentioned in Cridland Report
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