Child Trust Fund

Its aims

To provide:

• an increase in the value of the money (CTF vouchers or other payments) that have been invested for the child until their 18th Birthday.
• the proceeds of the investment free of Income and Capital Gains Tax under current CTF Rules.
• children with the opportunity to learn about financial matters and investments

Your investment

• You can only open a Shepherds CTF with a voucher you will receive from HM Revenue & Customs (HMRC).
• You or any other family members or friends can make further payments into the CTF up to £3600 per year.
• When the child reaches the age of 7, you will receive a further payment from HMRC.
• As a stakeholder plan the money will begin to be moved from Shares in companies when the child reaches the age of 13. The money will be moved into lower risk investments to protect the fund from the “ups and downs” of Company Shares in the last 5 years. This is known as Lifestyling
• The account and the money in it belongs to the child, although it is managed by a person with parental responsibility until the child is 16. When children reach 16 they will manage their own CTF accounts.

Risks

• The value of the CTF depends on the future performance of the investments held in the Fund and the value can go up as well as down during the time it is invested.
• At 18 the child may get back less than has been paid in.
• HMRC may change the tax status of a CTF in the future.
• This plan cannot be stopped or cashed in until the child is 18.

Questions and answers

What is a Child Trust Fund?

It is a long term savings account for a child to access at age 18 introduced by the Government in 2002.

What types of Child Trust Fund accounts are there?

There are 3 types of Child Trust Funds:

Non-stakeholder cash based accounts: any money you invest will be secure, but you should consider that although the investment will earn interest, it might not grow as much as if it was invested in shares.

Non-Stakeholder accounts: the child's money is used to buy shares in companies. This type of account has the potential to do well in the long term. However, the value of shares can fall as well as rise and you might not get back the value of your original investment. The charges on this type of account are usually set as a percentage of its value.

Stakeholder accounts: these also invest in shares, but the Government has set rules that aim to reduce the risk by spreading it across a variety of investments. Also, they have limited the charges for this type of account to a maximum of 1.5% a year. The charges on the other CTF accounts are not limited in this way.

Shepherds Friendly offers a Stakeholder CTF.

What is a Stakeholder CTF account?

A Stakeholder CTF Account is an account that meets strict criteria as set by the Government. The criteria are as follows:-

• A provider must accept minimum contribution of £10 into a stakeholder account.
• The maximum yearly charge is 1.5% per year
• There can be no Entry, Exit or Switching fees.
• A Stakeholder CTF must accept a variety of payment methods including Cheque, Direct Debit, Standing Order and Direct Credit.
• The Allowable investments must be mainly share based.
• The CTF Account must offer the choice of ‘Lifestyling’ from the child’s 13th Birthday.

How can I open a Shepherds CTF?

The CTF voucher will be sent to the Registered Contact (normally a parent or guardian) once they have registered for the Government’s child benefit. To open a CTF the registered contact must send this voucher to us with the application form to start the plan.

Who can make additional payments into the CTF?

Once the plan has started anyone can make a payment to it such as grandparents, aunts, uncles and family friends.

What are the limits?

The minimum we will accept is £10; the maximum in any year is £3600 (not including the vouchers).

Where is the money in the plan invested?

The voucher or any extra money from you will buy units for your child in the Fund. This means the value of units vary in price on a day to day basis so it will depend when the account is set up what price you will pay for the units.

Until the child is 13 the money is invested in the shares of companies which are listed on the UK Financial Times Share Exchange (FTSE) All Share Index.

Once the child reaches the age of 13 we will automatically begin switching units from the UK Index Trust fund into a Gilt and Fixed Interest Fund and will do so over the next 5 birthdays. This is called Lifestyling and it means the value of the child’s savings become more certain as they near their 18th birthday. The Gilt and Fixed Interest Fund only invests in UK Government Securities.

What is lifestyling?

Lifestyling is an option that helps to manage the risk of the investment. When your child turns 13 the money invested for them will be moved gradually from our medium to high risk fund to our medium to low risk fund.

How will I be kept informed about my Child’s CTF?

Each year you will receive a Statement showing the amount of units in the Fund and the value of your child’s CTF.

How much will it cost to administer the plan?

The charge on the stakeholder account is 1.5 per cent a year. This means the charge is £1.50 for every £100 in the account.

The following table is based on an initial investment from HMRC of £250 with an additional payment of £250 at age 7, plus monthly payments of £20 per month from other people. This assumes that the investment will grow by 7% each year. It covers the first 13 years of the CTF.

The last line in the table shows that over thirteen years the effect of the total charges and expenses could amount to £602.

Putting it another way, this would have the same effect as bringing investment growth from 7% a year down to 5.4% a year.

These figures are only examples and are not guaranteed.

They are not minimum or maximum amounts.

What the child will get back depends on how the investment grows and on the tax treatment of the Fund.

The Child could get back more or less than the amounts shown and in some instances it may be less than the sum originally invested.

Firms generally use the same rates of growth for projections but their charges vary unless it is a stakeholder CTF.

Please note that inflation would reduce what could be bought in the future with the amounts shown.

Can I transfer the CTF?

You are able to transfer in or out of the CTF but the money must come from or goto another approved CTF provider. There isno charge for the transfer. You must transfer the whole plan you cannot transfer part of it. To transfer in or out please complete the transfer form.

Please note that we can only accept instruction from the Registered Contact and then the child at age 16.

How does the Child withdraw the money from the CTF?

Just before the child reaches the age of 18 we will send them information about their options and how to continue to save or take the money. If we do not hear from them the money will be kept in trust and placed in a low risk environment.

What happens if the child dies?

Should the child die whilst the CTF is still invested then a death benefit will be paid to the legal guardian. The amount payable will be 101% of the value of money paid in from the government or the value of the fund if greater

What if I want to change my mind about opening the CTF.

As soon as we have accepted the application we will send you a letter telling you that you have 14 days in which to change your mind. We cannot open the plan until these 14 days have passed. If we do not hear from you the money from the voucher will be used to start the plan.

Any other payments into the plan cannot be returned, they are a gift to the child.

How much will the advice cost?

No commission is payable.

Where can I find out more?

Before your plan starts we will send you the full terms and conditions. These explain how the plan works. If you would like to see these terms and conditions before you apply, please contact us:

Phone: 0161 428 1212
Fax: 0161 428 3666
Email: info@shepherdsfriendly.co.uk
Website: www.shepherds.co.uk