More than a quarter of Child Trust Fund accounts with an average value of £1,911 remain unclaimed a year after they mature.
Children’s Trust Funds (CTFs) were tax-free savings products for children, introduced by the Labor government in 2002 before being phased out for new customers in early 2011.
The government has paid more than £2 billion to CTFs for 6.3 million children born during this period.
As more and more young people with a CTF reach the age of 18, an increasing number can access their accounts.
However, more than a quarter of FFCs remained intact for a year or more after their owners turned 18, according to the National Audit Office.
Forgotten Savings: A CTF is a long-term tax-free savings account for children born between September 1, 2002 and January 2, 2011, which they can access when they turn 18.
Separate research found almost a fifth of UK adults, rising to 36% of 18-34 year olds, think they may have lost a CTF or left one in place on behalf of children or of grandchildren become inactive.
Research from Gretel, an online service that reconnects people with lost and inactive accounts, estimates there is more than £2.2 billion in lost or inactive CTFs.
Myron Jobson, senior personal finance analyst at stockbroker Interactive Investor, said: “The NAO survey of CTFs lays bare the high level of account apathy.”
“The NAO apparently laments that it is virtually impossible to establish how many people have lost track of their CTF investments due to a lack of available data.
“The fact remains that it is the responsibility of parents or guardians and now adult children to find a lost CTF.”
What are children’s trust funds?
As with today’s Junior Isa, the idea was to help parents and guardians put money aside for their children to prepare them for adulthood.
Parents and guardians received vouchers which they could then place with a CTF provider, normally a bank or building society.
This included two £250 vouchers, one at the birth of the child and one at age seven, or two £500 vouchers for low-income families.
If the parents did not place these vouchers with one CTF provider, the government automatically placed the money in another in the child’s name.
The National Audit Office found that CTFs were at risk of being overlooked or lost sight of by account holders
Of the total 6.2 million CTF accounts, 1.8 million of them were opened by HM Revenue & Customs in this way.
Laura Suter, personal finance manager at investment firm AJ Bell, said: ‘Many parents and children don’t even know they have the account, or don’t know who the money belongs to or how to find it. .
“More than a quarter of CTF accounts were created by the government because parents failed to do so within the 12-month period.
“It shows why so many people are going unclaimed – because parents didn’t know or remember that an account had even been opened for their child, let alone where the money is now.”
£100m billed to CTF provider erodes returns
There are also concerns that many CTF providers charge huge sums for handling CTFs, eating into the money available to account holders.
The National Audit Office estimates that CTF providers – including banks and building societies – could collectively earn up to £100m a year from fees on accounts.
Suter adds, “Many of these accounts have very high fees, which means that all the time they go, unclaimed providers earn huge sums that eat away capital.
“The report estimates that CTF providers take £100m a year from savers in account fees, a figure that will rise as account values increase.
“This means that on average a fee of 1% per year is taken from the funds.”
How to find a lost account?
People don’t necessarily need their provider to know where a CTF is.
They will need to complete an online form to ask HM Revenue & Customs where the account was originally opened – although they will need to create a Government Gateway username and password if they don’t already have one.
Any parent looking for a CTF they set up will need the child’s Unique Reference Number, which can be found on the annual CTF statement, or their child’s National Insurance Number.
If someone is looking for their own CTF, they will need their national insurance number.
An easier way for 16-18 year olds to potentially find their account is through the charity Share Foundation.
Another option is to try Gretel, which reconnects people with lost and inactive accounts across all areas of financial services.
Young people and their parents can apply to HM Revenue & Customs for information about their Child Trust Fund online
It now claims to cover almost half of the CTF market.
What to do with CTF money
Once the CTF is found, the next step is to figure out what to do with the money.
Some may need it to help them with the cost of living, while others may be looking to save or invest elsewhere.
“Once you find the money, you can figure out what to do with it,” Suter says.
“For a lot of people it will make sense to transfer it to a Junior Isa, where the fees are likely to be lower and you have a lot more investment choice.”
“If you transfer the CTF you need to transfer the entire amount of money to a Junior Isa, you cannot open both types of accounts at the same time.
“But usefully, the amount you transfer will not count towards your Junior Isa annual limit.
“This means you can transfer the full CTF into a Junior Isa and add up to £9,000 to it in the same tax year.”
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