The first wave of child trust funds will mature later this year, but with £2 billion languishing in unclaimed accounts what can you do to reclaim these and other orphaned assets? Capital Hill reports.
The first beneficiaries of the child trust fund (CTF), the centrepiece of Gordon Brown’s plan to encourage asset-based welfare, will turn 18 in September and get access to the capital – if they have kept tabs on it that is.
Around £2 billion is languishing in 1.8 million unclaimed CTFs – around 30% of all accounts – according to the Share Foundation, a charity which runs a CTF ambassadors programme to raise awareness among school pupils and help them find and make best use of their money. The value of each depends on how much the government put in, whether any other contributions were made, and asset growth over the years.
CTFs were launched in 2005 but applied to children born on or after 1 September 2002. The government contributed £250 per child or £500 for those from low income families. At age seven, a second sum of £250 or £500 was given. Only children turning seven within a small window of less than a year spanning 2009 and 2010 benefited, as the scheme was stopped in August 2010 and the initial sum reduced to £50 or £100 for lower income families.
It was withdrawn entirely in January 2011 and replaced by the junior ISA (JISA) in November 2011, though this does not attract any form of government contribution.
Transfers from CTFs to JISAs were permitted from April 2015 and many parents have taken advantage of this to benefit from better rates of interest on cash savings, lower charges on investments and a wider choice of providers, but millions of CTFs remain.
Children born between 1 September 2002 and 2 January 2011 will have something saved somewhere, even if the parents don’t know where – or are unaware of the account’s existence. They had the first year of their child’s life to activate a CTF, otherwise the government opened an account for them.
“Many of the lost accounts were ‘revenue‐allocated’ when first issued: that’s why their families are often unaware of their significance,” said Gavin Oldham, chair of the Share Foundation.
“When launched, the CTF was a significant initiative designed to help children get into the habit of saving and to help them understand personal finance. However, unless young people connect with their CTF and, if missing, find their accounts swiftly, its impact will be lost.”
The good news for owners of unclaimed CTFs is that the government has recently laid down legislation to ensure money will continue to grow free of tax until they are reunited with it.
“This means that when it comes to reclaiming the account, even those over 18-years-old will still have a pot of tax-free cash to help them get started in adulthood,” said Adrian Lowcock, head of personal investing at Willis Owen, an investment platform.
A freedom of information request to HM Revenue & Customs from Quilter shows that £700 million of CTF assets will mature during the 2020-21 tax year and £7.5 billion over the next decade.
Rachael Griffin, its tax and financial planning expert, said those approaching 18 should talk to their parents about their CTF.
“Taking time to have the conversation now about how to use the money will mean that CTF holders can plan ahead,” she said. “That will give them the chance to make an informed decision about what is best for them and their finances. This could include investing it in an ISA or making use of the government bonus offered through the lifetime ISA to save for a property or later life.”
It is not just young adults who could benefit from tracing lost assets. A Pensions Policy Institute survey revealed that nearly 6% of uncrystallised pension funds (funds which have not yet been accessed for retirement income) are held by those identified as ‘gone away’ – equating to 800,000 lost pensions worth almost £10 billion.
“The thought of tracking things down can be daunting, but you’ll be surprised how much you can achieve if you dig out a couple of old pieces of paperwork and how much you can find, even if you’ve lost all your records,” said Sarah Coles, a personal finance analyst at Hargreaves Lansdown, an online stockbroker.
If you picked a CTF provider for your child or contributed to the account, look to see if you have any paperwork and get in touch with the provider.
If you don’t know the provider, you can track it down using the government’s CTF tracing service provided you are either the child who owns the account (aged 16 or over) or the child’s parent or legal guardian. It requires a Government Gateway user ID. If you don’t already have one, you’ll need your National Insurance number plus another form of identification, such as a passport or recent payslip, to create a log-in.
The Share Foundation acts as the registered contact for CTFs of children who grew up in care. Around two months before these children turn 16, it writes to them with information on how they can become the registered contact for their account. They can then choose whether to start managing the money themselves or leave it in the care of the Share Foundation until they turn 18, when they can withdraw the money.
Research by the financial services provider, Aegon, shows that 62% of UK adults have multiple pensions and 21% of them – 6.6 million people – are aware of having lost at least one pension pot.
If you think you’ve lost a workplace pension, get in touch with your former employer and ask for contact details of its pension scheme administrator. If you think you’ve lost a personal pension, look for any old paperwork. “There is a lot you can do online to follow a company’s history or track down what may have happened to an investment,” said Lowcock.
If your own research draws a blank, the government’s pension tracing service searches a database of more than 200,000 workplace and personal pension schemes to try to find relevant contact details. “It’s a useful plan B, but it’s always easier if you can find any details and go to the pension company direct,” said Coles.
If you have lost track of other savings and investments and know the company you held money with, contact it directly. You will need to prove your identity before they can reunite you with your lost assets.
If you’re not sure where your savings or investments are held, My Lost Account is a free service that helps trace lost accounts with banks, building societies and National Savings & Investments. You fill out a form, including details of any organisation you think you have an account with, and will receive responses from the financial institutions selected within 90 days.
Alternatively, the Unclaimed Assets Register is run by Experian and charges a fixed fee of £25 per search. It lets you search the records of around 75 different providers including investment firms and pension companies, so could save you some legwork.
Once you have found orphaned assets, review where they are invested to make sure they are working as hard as possible for you. Analysis by Morningstar, a global financial services firm, found 3,751 orphaned European funds with a five-year track record, assets under €100 million (£84 million) and little-to-no flows in five consecutive calendar years.
“Many are too small to be cost-effective,” said Jonathan Miller, head of Morningstar’s UK manager research. “Languishing with few assets, disregarded and saddled with high fees, these funds deliver poor investor outcomes.”
One way to streamline your assets could be to consolidate them. “It’s far easier to keep on top of things if you don’t have loads of pensions, investments and savings accounts in different places,” said Coles. “Look through what you have and see whether you can consolidate them to a single service without losing any valuable benefits.”
An online platform could help in this regard, enabling you to see all your investments in one place. “It’s even better if you use a service with an app, so you can check everything from your pension to your emergency savings account wherever you are,” added Coles.
Take steps to make sure you don’t lose track of assets again. Moving to a new house is one of the most common reason for this. It’s worth considering paying Royal Mail to redirect your mail for at least a year to cover any companies sending annual statements. Whenever you receive an important item of redirected mail, contact the company to update your address immediately.
It is also a good idea to compile an assets register, outlining what you have, and share this with a loved one. “One technique I use is to keep an active list of all the important information; this list isn’t for me, but for my wife to make it easier for her should I pass away,” said Lowcock.
Changing stock market conditions and currency exchange rates will affect the value of any investments and income from them. You may not get back the amount invested, meaning your capital is at risk.
You should note that tax rates and reliefs may change at any time and their value depends on your circumstances.
This information has been issued and approved by Baillie Gifford & Co Limited and does not in any way constitute investment advice.
Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions.
Jennifer is an award-winning British financial journalist. She left The Sunday Times, where she was deputy Money editor, to set up her own company, mediahill Ltd. She is a previous personal finance correspondent of Reuters, the global news service, and personal finance editor of The Scotsman newspaper. She has won or been shortlisted for six Headlinemoney awards, the ‘Oscars’ of personal finance journalism in the UK. She has also scooped or been nominated for accolades from the Association of Investment Companies, Ignis Asset Management, the Association of British Insurers and the British Insurance Brokers’ Association.