‘Over half (57%) of [Gen Z] respondents do not have enough emergency savings to cover three months of expenses. Nearly one-third (30%) feel they don't make enough money to save.’
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Joe (not his real name) reached his 22nd birthday last Sunday, 1st September. Born in North-East England in 2002, he’s one of the lucky ones — but in fact he's not, because he doesn't know anything about the good fortune which has been tucked away for him in his Child Trust Fund.
Joe was born into really difficult circumstances. His dad, a former miner, had lost his job several years earlier and his mum wasn't well enough to work. Dependent on a council flat to live in and benefits, at least they received Child Tax Credit to help with Joe's early years.
His good fortune was to be one of the very first young people eligible to have a Child Trust Fund; the scheme brought in by former Labour Chancellor Gordon Brown. The plan was described as ‘asset welfare’ but, although Joe's parents understood all about welfare, they didn't understand anything about assets. So, when a voucher arrived through their letterbox saying that they could use it to open one of these Child Trust Funds accounts, they had no idea what it meant.
Fast forward one year from Joe's birth, and HM Revenue & Customs took the necessary action. £554, the opening deposit for children of Joe's age in families in receipt of Child Tax Credit, was put into a new account in Joe's name, identified also by his National Insurance Number. The account provider — let's call it ‘Money4GenZ’ (again, a fictitious name) — was one of fourteen providers who had volunteered to open and administer these HMRC-allocated accounts.
Joe's parents were sent a notification by HMRC at the time, but that too got lost.
However, Joe's money was invested as required in a stock market fund, and it enjoyed a steady increase in value over the years. Let's say that its annual growth was 7% — but bear in mind that Money4GenZ took 1.5% each year, the maximum fee allowed for account administration and investment fund charges: so it actually grew by 5.5%.
In 2009, following Joe's 7th birthday, the then Labour Government added another £500 to his account. Its value was building well, and it continued to increase at that net average annual rate of 5.5% until the present day. For those familiar with the power of compounding growth, it means that Joe's account today is worth nearly £3,000 (£2,822) — not bad for a young lad who has struggled throughout his childhood and adolescence.
Of course, those who know about how Child Trust Funds work will appreciate that he could have taken control of his account in 2018 from HMRC, who still remain its ‘registered contact’ because Joe's parents had never contacted Money4GenZ to take control. He was sent his National Insurance Number in an HMRC notification in September 2018, which did make brief mention of the account — but he didn't realise its significance.
Then, in September 2020, he could have withdrawn the money when he became an adult: but again, he didn't know anything about it. Joe doesn't read the newspapers, particularly those which talk about finance, and there was no general Government publicity focused on encouraging young people to claim their Child Trust Funds: but then, it was a Conservative government which had developed a ‘Not Invented Here Syndrome’, and which thought that if Child Trust Funds became an issue for celebration it would be to the Labour Party’s benefit, but if things went wrong, they would carry the can.
So Joe struggled on into adult life. He didn't go to university, and the pandemic made it really difficult for him to find a job. Now aged 22, he's one of those 872,000 young people to whom we referred last week — no job, no money, no prospects.
Meanwhile, Money4GenZ has done very nicely out of fees charged to Joe's account. They’re currently drawing down £42 in fees each year — not bad, when you don't have a valid address to send valuations or letters, and you don't have any need for a customer helpline. They get the odd nudge from the Financial Conduct Authority about the need to link unclaimed accounts, but there's no threat of being fined because they're making all the right noises (even though they're not funding any search or promotion efforts, and they’re not reducing their fee levels).
Four years have now gone by for adult-owned, unclaimed, HMRC-allocated Child Trust Funds, and it’s time for our new Labour Government to take action. Joe's not alone — there are 300,000 young adults with HMRC-allocated unclaimed accounts which received the higher initial payment for low-income families, and 75,000 of them are already past their 21st birthday.
So The Share Foundation, which put forward its ‘Default Withdrawal at 21’ proposal earlier this year, has written to the new Economic Secretary to HM Treasury, Tulip Siddiq, asking that action be taken without further delay. Ruth Kelly, the former Treasury Minister who introduced Child Trust Funds for Gordon Brown and who is now a trustee of The Share Foundation, describes the current figures for unclaimed accounts as ‘extraordinarily awful’.
The proposal is straightforward: to link the National Insurance Number reference on the account in order to enable its young adult owner’s money to be delivered directly through the Benefits, Payroll or Student Loan systems so that it can be used just as Gordon Brown and Ruth Kelly first intended — to provide resources to help young people to make a good start in adult life.
It could make all the difference for Joe, particularly if it's accompanied by some straightforward guidance on how to put the money to good use — maybe a training course, or some help with transport for getting employment.
The amount of money which would be released if The Share Foundation’s proposal is accepted is very substantial: nearly £300 million would be released immediately, and each year thereafter a further £300 million would help low-income young people to make a more successful start to adult life.
There would be no cost to the public finances — the money is already in the young person's name, and the economy would be boosted considerably by helping many of those who are currently not in education, employment or training to find a job.
Looking further ahead, if we get the low-income part of harvesting the Child Trust Fund scheme working properly, the new Labour Government might consider a new scheme for inter-generational rebalancing once it's got on top of the black hole in public finances: possibly fuelled by Inheritance Tax receipts?
Maybe Joe should think about standing for parliament himself, and calling for such a policy …
Gavin Oldham OBE
Share Radio