By Lea Pachta

Andrew Hagger of Moneynet.co.uk questions the Liberal Democrats plans to end public contributions to Child Trust Funds (CTFs):

“Whilst the most pressing issue for the Government in power come May 7th will be to set about reducing the budget deficit, at the same time, it should not lose sight of the importance of encouraging the savings habit in the UK.

“The three main political parties each have a different view on CTF’s with Labour looking to carry on with the scheme as is, Liberal Democrats wielding the axe and the Conservatives maintaining the funding for the poorest third of families and those with disables children only.

“The scheme to kick-start the savings habit in this country was introduced five years ago, and it is anticipated that five million children will have benefited from the CTF by the time we reach the middle of 2010.

“Whilst there is an upfront cost to the Government of £250 (up to £500 for poorer families) at birth and a further £250 on the child’s seventh birthday, statistics from TISA (www.tisa.uk.com) reveal that additional contributions of £14.4 million are being made on over 640,000 CTF accounts every month (average £22.50 per month).

“By saving just £22.50 per month on top of the two £250 payments from the state, a CTF with growth at a modest 4% would be worth £7964.70 by the time a child reaches 18 years of age.

“Just imagine if the CTF had been introduced in 1992, those with a CTF maturing this year would be able to use their lump sum to offset the rising cost of higher education or even put it towards that now seemingly impossible deposit required for their first home.

“So whilst the CTF scheme may still be in its infancy the political parties shouldn’t lose sight of the fact that from 1st September 2020 when the first CTFs mature, there will be a constant stream of 18 year olds entering adult life on a much sounder financial footing than previous generations – does it really make economic sense to wipe that out?

“The Labour promise to maintain CTFs for all may be considered a pledge too far bearing in mind the size of the deficit and the Tory choice to maintain it for those on the lowest income looks a more prudent and acceptable approach in the circumstances.

“The Liberal Democrat plans however will remove the incentive to save and is short sighted, and even if they give the money back to the electorate via different measures, the funds are far less likely to end up in a child’s savings account.

“Many people in this country have paid a heavy price for relying on expensive credit during the last decade, and a return to the values of saving for the future rather than the ‘buy now worry about it later’ attitude should be something that’s very near the top of the agenda for all political parties.”

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