Child Trust Funds were introduced in 2005, by the Chancellor of the Exchequer, Gordon Brown, as an incentive for parents, including those who may not otherwise put money away, to save for their children's futures. Every child born on or after 1st September 2002, receives a starter payment of £250 or £500, according to financial status, followed by a payment of the same amount shortly after its seventh birthday. Parents, relatives and friends can contribute up to £1,200 per annum into a Child Trust Fund and interest earned on savings is completely tax-free. A Child Trust Fund does however, belong to the child and cannot be accessed by anyone but the child and even then not until his or her eighteenth birthday.
The Conservative Party intends to effectively abolish the Child Trust Fund scheme completely for families earning over £17,000 per annum, if it takes power at the next General Election, including the abolition of payments to families in that earnings bracket that already have a Child Trust Fund in operation. This is seen as a money saving measure by shadow Chancellor, George Osborne, but an estimated saving of £250 million per annum pales into insignificance when compared with a public borrowing figure estimated at £150 billion or more for 2010.
Conservative plans were criticised by Director General of the Association of Investment Companies, Ian Sayers, who said that the Child Trust Fund should remain as a tax-free savings incentive, regardless of whether or not a Conservative Government would be prepared to continue existing payments. Mr. Sayers stressed the importance of a savings culture, especially in troubled times, economically and the role that the Child Trust Fund plays in conjunction with financial education in schools, in the development of financial skills in children and young adults.
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