James Coney  

CTFs and pension pots need real engagement

James Coney

James Coney

Child trust funds are the great white elephant of the last Labour government.

A gigantic bribe to every new parent, they were headed for disaster the moment the cash ran dry.

So now, almost a decade since they were phased out, it seems that £1.5bn, belonging to about 1.5m children is missing.

What a catastrophic waste of resource that could be put to better use.

Often the cash was dumped in to a random account, or put into one from a limited range, and there it remained.

When Labour introduced the CTF they pretended that they were concerned about the future of the next generation – when in reality they had given no forethought at all to how these funds would be used.

Aside from the outrageous unfairness of having siblings with different handouts from the government (I have one son with £250 free cash and another with none), CTFs were often high-charging, frequently under-performing and, without almost any exception, totally inflexible.

When the scheme ended I led a campaign to allow the money in CTFs to be moved in to Junior Isas. 

Despite what I always believed to be the patent common sense of this, the government initially resisted. 

The pensions industry should study this debacle and take note.

The curse of CTFs is a lesson about the consequences of compulsion. If you force people who are not ready to save to put aside cash, and put their money into accounts that they have no engagement with, then it is going to languish.

This is just what is going to happen to auto-enrolled pensions unless someone gets to grips with allowing savers to take their scheme with them when they move to a new job.

Britain’s workforce is incredibly mobile, and they are all going to have pensions from every job they go to. 

This could leave many with pots dotted here and there – forgotten about and languishing.

Auto-enrolment has the potential to empower future generations in retirement, but someone needs to think today about what is going to happen 30 years in the future. 

Auto-enrolled schemes need to match the mobility of the workforce. Basically the complete opposite of CTFs.

In a report in The Sunday Times, Chase de Vere’s Patrick Connolly warns that the biggest danger of the CTF could be that when the child reaches 18 they would just blow it all on foreign holidays and fast cars.

In principle he is right, of course. 

But in reality when these teens open up their CTFs they are going to find barely enough to buy a return rail ticket to Weston-super-Mare.

Regulators must act faster

There is no mourning in these quarters for the demise of Wonga. I sometimes play over in my head those months in which every national newspaper without fail raised concerns about the way the payday lender was conducting business.