It could be you?

IT'S A ROLLOVER! After weeks when no-one had won it, last Friday, the top prize in the Euromillions lottery stood at £100 million. On the basis that a paltry £5 million or so would not change my life, I do not normally buy tickets in the lottery, but £100 million is a different story. Did I win? Do you seriously expect I'd be sitting at my desk writing this if I had …? Still, there's always this week — think what I could do with £125 million!

From time to time, the National Lottery alerts the media to the fact that a ticket for a major prize has gone unclaimed, and the time limit is about to run out. So in that spirit, I want to alert you, and for you to alert your clients, employees and contacts, to the even larger government prize fund of over £250 million which is still unclaimed — over one million prizes of £250 or £500. It could be you — if you you had a child born on or after 1 September 2002.

Prizes galore

Yes, it's the Child Trust Fund (CTF). Over a million vouchers for the initial payment, which were sent out to the person claiming Child Benefit, are languishing in drawers or on hall tables, waiting to be converted into an investment for the child at eighteen. The statistics are issued every three months, and they currently read like this (all figures in thousands):

Date issued                              Issued                   Invested

Now there will always be a 'natural' level of uninvested vouchers. Some research into the right type of account to open is not unrealistic, and compared to learning how to change nappies and the attraction of falling asleep on the rare occasions that the baby is not crying, sorting out the CTF voucher is not going to be a top priority. HMRC also point out that there is a cooling-off period of between 14 and 31 days once the account is opened, and it will not be reported to them until after that has expired. But it does not seem unreasonable to say that if the vouchers issued by 20 August have not been invested by 20 November, they are probably not a high priority, and therefore that the likelihood of them being invested without further prompting gets lower and lower as time goes on. The falling level of vouchers invested in each period would seem to bear that out.
The next set of figures will be to 20 February. If we assume that, say, 200,000 more vouchers have been issued, and that, given the higher number issued to 20 November compared with the previous period, the number invested during the period is up to 300,000 (a generous estimate), that would put the number of uninvested vouchers at about 870,000, of which about 670,000, or two-thirds of a million, are 'hard-core' non-investors — they have had the voucher for at least three months without opening an account and getting past the cooling-off period.

Deadline

The deadline for opening an account has already expired for some. Vouchers started to be issued on 17 January 2005, and they expire after a year. That does not mean that the money is lost, but it does take us into the twilight world of allocated accounts.
If you do not open an account by the time that the voucher has expired, one will be opened automatically by HMRC, using a list of default providers on a 'Buggins turn' system. The list of default providers is not published, but the BBC Radio 4 programme 'Moneybox' had confirmations from ten institutions that they were running allocated accounts opened by HMRC. The biggest provider listed is the Halifax, but many of the other names will be much less well-known.
This is because there was not exactly a rush, at least initially, to jump onto the CTF bandwagon. All providers are required to offer a stakeholder account which has to accept minimum additional contributions (from parents, friends, relatives etc) of £10, and has to provide the required annual statement and other administration costs out of a prescribed maximum fee. The original proposal was that this should be 1% of the fund value, but very few providers were prepared to take on the task at that level, so it was increased to 1.5%.

The numbers game

That increased the number of providers to a respectable, though still not a very large, figure. The dedicated website for the CTF, www.childtrustfund.gov.uk, says that there are 'over 70 different places' where you can open an account. So there may be, but that does not mean that there are over 70 different providers — the site is counting those who are acting as distributors of one or more providers. The total number of providers listed is 38.
Not all providers are going to take allocated accounts. The reason is understandable — providers are still unlikely to make much money out of the Government contributions alone. They have to hope that a significant number of the accounts will receive further contributions of up to £1,200 a year from parents, friends and relatives. And, let's face it, if the parents haven't got around to opening the account within twelve months, that would suggest that they are not taking that much interest in the child's financial future.
Of the ones that are taking allocated accounts, some are extremely small. 'Moneybox' highlighted the Schoolteachers' Friendly Society, which despite its name is now open to non-teachers as well. It only has four full-time employees, although it has invested in a new computer system, and says it will take on new staff to cope if necessary. But what sort of workload is it going to have to cope with?
Another default provider, Family Investments, told the Treasury Select Committee last November that each default provider was likely to receive 60,000 accounts to open.

64,000 investor question

By contrast, the Schoolteachers' Friendly Society had just over 4,000 policyholders in total as at 31 December 2004, according to its annual report and accounts. Even that does not tell the whole story. The vast majority of those were for the traditional business of a friendly society — insurance providing an income when the policyholder or a child is sick. They did have a tax-exempt investment policy on offer as well, but only had 175 policyholders for it, and £46,697 invested during the year. The contributions from 60,000 allocated CTFs would be a minimum of £15 million, nearly doubling the society's total current investment capital.
I have the greatest respect for many of the small friendly societies. They have done a marvellous job over the decades providing income in sickness and tax-exempt savings for a segment of the market that the larger insurers tend to ignore. If any institutions can cope with such a mammoth task, they are the ones who can. But I do fear that they are going to be overwhelmed when, instead of communicating with 4,000 members, a society such as the Schoolteachers has to start communicating with 64,000 — particularly when the new 60,000 will have no understanding of its ethos and principles, nor of the workings of the CTF. I suspect that the staff will be spending a large part of the next few months fielding calls from parents who at best will be trying to understand what has happened, and at worst will be demanding that 'their kiddies' money' be paid out to them now to fund a trip to Disneyworld.

Issue: 4043 / Categories: Comment & Analysis , Income Tax