Almost a million young adults entitled to unclaimed Child Trust Funds worth £1.7bn, finds PAC
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Barriers in accessing funds for children and young people lacking
mental capacity as money fails to reach many it was designed to
help Providers earning up to £100m a year in profit off savings
mostly composed of Government money – with some not doing enough to
link the funds with their owners Over £1.7bn is sitting waiting to
be claimed by almost a million young adults, at an average value of
approximately £1,900 each. In a report published today on Child
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Over £1.7bn is sitting waiting to be claimed by almost a million young adults, at an average value of approximately £1,900 each. In a report published today on Child Trust Funds (CTFs), the Public Accounts Committee (PAC) finds that the amount potentially sitting unclaimed in matured accounts is 50 times that raised by the BBC’s Children in Need appeal in 2022. CTFs are tax-free savings accounts set up for all children in the UK who were born between 1 September 2002 and 2 January 2011. Following a failure in long-term planning by HMRC, which set up the accounts, 42% of all 18-to-20-year-olds have not claimed the savings in their matured accounts. Given CTFs are not reaching many of the people they were designed to help, HMRC should be doing more to find and contact young people who have not claimed their savings. It is likely that many account-holders may not know about their savings or have lost track of them. As around 887,000 CTFs, or half of all accounts, were for children in low-income families, it is likely that much of the unclaimed money belongs to young people from low-income backgrounds, those who need it most. CTFs are also not easily accessible for the families and carers of children and young people lacking mental capacity. While up to 126,000 of these young people must have a family or carer apply for legal authority to access and manage these funds on their behalf, the Court of Protection (covering England and Wales) approved only 15 such applications during 2021. The report also finds that while providers are charging fees for passively managing CTFs, many are not doing enough to link up forgotten accounts with their owners. Only four providers, out of around 55 in total, have proactively and voluntarily worked with the Tracing Group, a commercial service for tracing the owners of dormant accounts. Providers could be collectively earning up to £100 million per year through charges on Child Trust Funds. The PAC’s inquiry heard these charges are very high indeed for fund management, though HMRC claims the charges are less than the annual growth of these investments. Dame Meg Hillier MP, Chair of the Committee, said: “The aims behind Child Trust Funds are laudable - for young people to come into a pot of money on reaching 18, with the promotion of financial literacy and good savings habits. But many young people are unaware that they have money waiting to be claimed. Schemes like these need careful planning so that they are not forgotten at the point when they mature. “Our inquiry heard a world of difference can be made to care leavers in particular, with Funds acting as a jump-start into adult life. In an ongoing cost of living crisis, our young people need every bit of support we can give them. HMRC still has time to make sure that CTFs are given the chance to be the boost to young people’s futures which they were designed to be.” PAC report conclusions and recommendations The Child Trust Fund scheme is not reaching many of the people it was designed to help. According to the account providers’ trade association, in Spring 2023, 42% of all 18-to-20-year-olds – almost a million young adults – had not claimed the savings in their matured Child Trust Funds. According to The Share Foundation, the value of unclaimed accounts is now over £1.7 billion. Many children and young adults whose Child Trust Funds were set up by HMRC are now unaware of the Child Trust Fund’s existence, and providers are experiencing difficulties contacting many account holders. The evidence available to try and establish exactly how many young people may have lost track of their investments in Child Trust Funds is limited, and many young people may have consciously chosen not to claim their savings yet. However, it is likely that a high proportion of the unclaimed money belongs to young people from low-income backgrounds, those who need it most, as a higher proportion of these accounts were set up by HMRC many years ago. HMRC has increased its communications since 2018 but acknowledges Child Trust Fund account holders are not its usual audience, and that there are lessons to be learnt on how government communicates with disengaged groups. Recommendation 1: HMRC should do more to find and contact young people who have not claimed their Child Trust Funds, to ensure they are aware they have an account and know how to access their money. HMRC should:
Providers are charging fees for passively managing many Child Trust Funds and some could do more to connect young adults with their accounts. Providers can charge fees up to a cap of 1.5% per year on ‘stakeholder’ accounts, the most common type of Child Trust Fund account, which equates to nearly £30 per year on a typical account and up to £100 million a year across all accounts. The Share Foundation described the charges as “very high indeed for fund management”, but HMRC claimed the charges are less than the annual growth of these investments. Providers are making even more money from some Child Trust Funds in other ways, for example, other types of Child Trust Fund have no cap on fees. The Share Foundation described a case in which a provider had asked the charity to pay £20 for a single account statement, which it declined to do. In many cases, providers are likely to be incurring very few costs from managing Child Trust Funds and to be making profits off savings mostly composed of government money. We heard that four providers have actively engaged with the Tracing Group – a commercial service for tracing the owners of dormant accounts – to set up a Child Trust Fund register. However, some providers are not doing enough to link up forgotten accounts with their owners. Recommendation 2: HMRC should work in partnership with other parts of government to ensure that all providers are incentivised to establish contact with all young people whose Child Trust Funds they manage, and so that they earn fair fees, proportionate to their level of activity. The Child Trust Fund scheme is not easily accessible for the families and carers of children and young people lacking mental capacity. The Ministry of Justice estimates that between 63,000 and 126,000 young people may not have the mental capacity to access and manage their matured Child Trust Fund when they reach adulthood. Instead, their family or carer must apply for legal authority to access and manage it on their behalf. However, the Court of Protection (covering England and Wales) approved only 15 such applications during 2021. Financial deputyship rules in Scotland and Northern Ireland are comparable to the rules in England and Wales, meaning similar issues are likely to have arisen. Fees are waived if families are only applying to access a Child Trust Fund but there are other barriers – we heard examples of a six-page GP letter being needed as part of the process, and the Downs Syndrome Association told us that low awareness about banking safeguards among parents it supports is a barrier to accessing their children’s Child Trust Funds. HMRC emphasised to us that the owners of matured Child Trust Funds are adults, and the law needs to protect their interests. Providers, the Ministry of Justice and HMRC are aware of the issue. HMRC said its guidance explains what people need to do. Some providers have, at their own risk, allowed families of young people without capacity to access funds in a Child Trust Fund up to £5,000. Recommendation 3a: In its Treasury Minute response, the government should set out what steps different bodies, including the Ministry of Justice and its equivalents in the home nations, are taking to help the families of young people who lack mental capacity to access their Child Trust Funds without excessive bureaucracy and cost.
The objectives of the Child Trust Fund policy have not been achieved, but there is still time for HMRC to act. After establishing the scheme, HMRC showed little interest in achieving the wider objectives planned from government’s £2 billion investment. It regards the Child Trust Fund policy as having ended in 2011 when the new government closed the scheme to new entrants, despite the scheme being very much live and most accounts yet to mature. Its focus has been on raising awareness of Child Trust Funds and not on the other policy objectives. Disappointingly, the scheme has not been used to support young people’s financial education and improve financial literacy. The Share Foundation believes that only about 25% of students leave school saying that they have been adequately prepared in financial awareness. The duty to implement the policy was not fully HMRC’s but it did not establish the partnerships with other departments and organisations needed to implement and achieve the policy’s objectives. HM Treasury has not given HMRC dedicated funding for the scheme, nor supported it to do more with Child Trust Funds. We are concerned that Child Trust Funds will become another example of a legacy financial product that is not given the necessary attention by government to succeed against its aims over the long term. Recommendation 4: HMRC should:
HMRC does not collect the data from providers needed to plan timely action to improve young people’s engagement with their accounts and assess whether its actions are working. HMRC’s understanding of Child Trust Fund accounts that have matured but are yet to be claimed is nearly two years out-of-date: its most recent estimate is based on data collected in April 2021, just seven months after the first accounts matured. It intends to publish its next set of statistics in summer 2023 based on data from April 2022. It told us it cut back its monitoring and compliance activity on the scheme from 2013, when the risk of tax loss from people opening Child Trust Funds they were not entitled to had fallen significantly. Consequently, since then HMRC has not been actively protecting Child Trust Fund customers (although the standard protections provided by the FCA still apply) or monitoring providers’ behaviour. HMRC has also not kept its records on Child Trust Funds up to date, affecting the effectiveness of its tracing tool. Recommendation 5: HMRC should:
HMRC is not planning to re-evaluate the scheme or learn lessons from its implementation that could help in the design or improvement of similar schemes. HMRC published an interim evaluation of the scheme in 2011 but has not reassessed the scheme since young adults first started claiming their money from matured accounts, which was in 2020. It claims there is no “particular appetite” for further evaluation. It told us that only ministers can decide if an evaluation of the scheme should be undertaken, with which we disagree. HMRC told us that its involvement in initiating evaluations is centred on advising ministers on the tax system, including areas it believes require further analysis. HMRC told us that from a policy perspective it learns lessons from previous work and creates ‘playbooks’ for future policies. However, it is unclear to us how HMRC officials can give ministers comprehensive and up-to-date advice without sufficient evaluation of its schemes. It told us that government has learnt lessons from the experience of introducing Child Trust Funds, including on how to approach groups with very different levels of engagement with a universal scheme, but it has provided no detail of how those lessons have been learnt or where that learning has been captured. The engagement of the Share Foundation to manage Child Trust Funds on behalf of children in care has given a focus to those accounts and should be a lesson for HMRC on how to make its schemes work well for hard-to-reach groups. Recommendation 6: HMRC should, at the appropriate time within the next 24 months, evaluate the scheme to understand what has been achieved from government’s £2 billion investment and what impact it has had on the lives of young people and identify lessons that would benefit similar schemes in the future, particularly around how to design and implement a scheme that works well for vulnerable groups./ENDS Full inquiry info including evidence received can be found here - Child Trust Funds - Committees - UK Parliament |