In a hearing before the Public Accounts Committee (PAC), MPs questioned the effectiveness of child trust funds (CTFs), which were introduced as long-term tax-free savings account for children born between 2002 and 2011.

Peter Grant MP for Glenrothes questioned the number of unclaimed CTF accounts and whether HMRC was aware of how many young people had lost track of their money.

Gavin Oldham, chairman and founder of the Share Foundation, referenced the most recent estimate of CTF accounts remaining unclaimed, which currently stands at 42%, according to The Investing and Saving Alliance (TISA).

Oldham said: ‘According to the current TISA estimate, which was conducted in spring this year, there are around 900,000 young people who have unclaimed CTF accounts. Using the National Audit Office (NAO) figures of the average value, being £1,900, this means there is a total value of £1.8bn being left unclaimed by young adults.

‘To put that into context, related to the Children in Need appeal which raised £35m, it would take years of Children in Need appeals to raise the same amount of money which is unclaimed by young people at the moment. It is a really major issue which is denying young people a proper start to adult life.’

Official HMRC figures released in April 2021 estimated that £394m in CTFs were unclaimed, which during the cost of living crisis, could be a vital lifeline to young people entering adulthood, particularly from low income households.

Jim Harra, chief executive of HMRC, told the committee that more information about CTFs will be issued in HMRC’s next annual statistics, which will be published in July.

CTFs were introduced in September 2002 and were abolished by the coalition government in January 2011. They offered long-term tax-free savings account for children, which they can access when they turn 18.

More than £2bn was paid into CTFs for 6.3 million children born during this period, with most receiving around £250 at the time their fund was started. Children from low income families or in local authority care received an additional £250.

However, according to a report issued by the NAO, it was estimated that 145,000 accounts have not yet been claimed, worth £394m in April 2021.

Harra said: ‘There is a bit more information required to understand what the behaviours are related to why accounts have not been accessed. Is it because the account holder is unaware that they hold a CTF account or have they decided not to access it at this point?

‘I think over time as more accounts mature, and we generate more data, we will need to delve deeper and deeper to understand those reasons.’

Oldham told MPs that more should be done to increase financial awareness and literacy to help people understand the relevance of CTFs, particularly for lower income households – who, he stressed, were the very people which the scheme targeted.

He also stressed that HMRC still relies on an outdated search registry, using data from 18 years ago, making it difficult to keep young people informed on the CTFs’ existence.  

When asked about how HMRC intends to keep young people up to date with the CTF scheme, Emily Antcliffe, director of individuals policy at HMRC, said that the authority plans to run an awareness campaign later this year.

Emily Antcliffe, director of individuals policy at HMRC, said: ‘From 2018, we produced leaflets to volunteer tax ambassadors who visit schools, and in 2019, we changed the national insurance letter which now includes a reference of the CTF accounts and how to access them. We are currently looking at potential partnerships with UCAS.

‘We need to keep an eye on these matured funds and see how the work we are already doing increases access and as the numbers become clearer, we may decide to consider further outreach with our communications.’

Disabled children were also at risk of being locked out CTFs, as raised by Olivia Blake MP for Sheffield, Hallam, during the committee.

Antcliffe added: ‘We are aware of some of the challenges that have been raised recently. We know that Ministry of Justice (MoJ) is looking at simplifying the process, but we do need to make sure that it works.’

Parents and guardians of disabled children, unlike those of non-disabled children, need to complete a full court of protection application to access the accounts.

There are around 80,683 disabled children and young people in the UK who are likely to have a CTF, with an average account value of £2,280.

However, between 2020 and 2021, just 15 court applications were processed involving a CTF account.

More information about CTFs can be found here.