MONEY COMMENT
A Boost For Your Baby

By Jane Mack (TMFJane)
October 14, 2004

The Chancellor, Gordon Brown, can't have had much to celebrate in recent weeks following the Prime Minister's announcement that he fully intends to continue in the top job for a third term given half a chance by the electorate. It's a job the Chancellor's had his eye on for quite some time.

This Sunday, however, he can put such thoughts out of his mind and bring out the balloons and bunting instead. It is his son, John's, first birthday after all. He'll also be able to rejoice in the knowledge that his son will qualify for the first payment of £250 into the new Child Trust Fund being launched next year.

What's the new Child Trust Fund, I hear you ask? If you've never heard of it, you wouldn't be the only one. According to the Association of Investment Trust Companies (AITC) 62% of parents and grandparents haven't heard of it either.

The Chancellor first announced plans for the Child Trust Fund three and a half years' ago but it's taken so long to work out the details that it's not surprising people aren't really aware of the scheme.

The idea is that every baby born after 31 August 2002 will get a gift in the form of a voucher from the Government of £250, rising to £500 for low-income families who qualify for the full Child Tax Credit. An additional lump sum will be added to the fund when the child reaches the age of seven although the amount has yet to be decided.

In addition, family and friends will be allowed to top up the fund between them by up to £1,200 a year and it can be invested in shares, bonds or cash. Generally, no access to the funds will be permitted until the child reaches 18 so once the contributions have been made, they're locked in for the lifetime of the fund. Like the ISA, growth in the fund will be exempt from tax.

Obviously £250 isn't a vast amount of money so the key to getting the best out of the scheme will be investment by family and friends. If they drip-feed £100 a month into the fund, and assuming growth at 7% and that £250 is added by the Government at age seven, the child could walk away with £43,701. Those from low-income families could get an even better £44,546.

The Inland Revenue will start issuing vouchers to those who already qualify from January although family and friends won't be able to contribute anything until the official launch of the scheme in April.

However, that doesn't mean you can't start working on grandparents, godparents and others now to persuade them to contribute to your child's trust fund over the coming years. Christmas Day might be a good time to raise the subject, assuming you've fed them enough food and wine to fill them with sufficient goodwill!

> Find out more about how the Child Trust Fund will work | Take a look at our Saving For Children centre.