Child Trust Funds: 200,000 disabled children may be locked out

As many as 200,000 disabled children over the next eight years could potentially be locked out of their Child Trust Funds unless their families pay hundreds or even thousands of pounds in court fees.

Campaigners, Child Trust Fund and Junior Isa providers and trade bodies are in discussions with the Government to come up with a solution to a nearly 20-year-old timebomb which is beginning to go off for families and their vulnerable children.

Children with mental and physical disabilities reliant on their parents to manage their money do not have the capacity to do so themselves, leaving them unable to access their Child Trust Fund savings when they turn 18.

As many as 200,000 children could be unable to access their Child Trust Fund savings without a court order due to a problem with how the savings accounts were designed

As many as 200,000 children could be unable to access their Child Trust Fund savings without a court order due to a problem with how the savings accounts were designed

But because the money belongs to them, their parents or guardians are unable to access it either unless they get an order from the Court of Protection letting them manage the money on their child’s behalf.

The court application can cost £365 plus up to £2,500 in solicitors’ fees which in many cases will more than wipe out the amount of money saved into a CTF, with the UK’s largest provider OneFamily saying the average amount held in its accounts was £2,100.

The Government and CTF providers insist the procedures are necessary to protect vulnerable children from being exploited by unscrupulous people attempting to access their money and to maintain their legal rights.

But the lawyer who has been campaigning for a change in the law since 2016 said the risk of abuse was ‘tiny’, due largely to parents saving their own money for 18 years on behalf of their child and being trusted by the Department for Work and Pensions to manage their child’s benefits.

Philip Warford, the managing director of law firm Renaissance Legal, said the problems affecting as many as 200,000 of the 6.3million Child Trust Fund holders dated back to the launch of the accounts in 2005.

The savings accounts were launched by then-Chancellor Gordon Brown, with children born between September 2002 and January 2011 given a voucher of up to £500 by the Government, with parents encouraged to contribute too. 

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More than 700,000 teenagers will be given the keys to their Child Trust Funds over the next 12 months.

But Mr Warford said it was never made clear to parents that disabled children would be unable to access the funds at 18 due to their lack of mental capacity.

My son James would like to buy a new adapted bicycle with his savings, but because the scheme has no process for dealing with mental capacity issues, come September he will be completely barred from accessing his account.

Andrew Turner, from West Sussex, wrote in The Guardian at the end of August that his disabled son James, who would be one of the first trust fund teenagers to turn 18, would be blocked from accessing the funds.

He wrote: ‘He would like to buy a new adapted bicycle with his savings, but because the scheme has no process for dealing with mental capacity issues, come September he will be completely barred from accessing his account.

‘We then face the cost and delay of an application to the court of protection on his behalf. With coronavirus delays in the court system, we are told it could take up to a year to secure this approval.

‘In 2005, the government offered parents additional incentive payments to invest in a child trust fund if they were claiming disability living allowance.

‘From September, many of these disabled young people may not receive any benefit from their savings if they are reliant on their parents for help with finance. 

‘The prospect of initiating a formal court process alongside the challenges of supporting a disabled young person will be daunting for many families.’

The same problems also currently affect the 954,000 holders of Junior Isas if they are disabled and unable to manage money.

Mr Warford told This is Money that he believed there was a simple way to fix the problem by adapting an existing procedure which allows the parents of children with less than six months to live to access the money provided they get confirmation from a medical professional.

He said the Child Trust Fund regulations ‘should be adapted to cover severe disability’ in cases ‘where a person will not be deemed not to have capacity to manage a bank account for themselves’, enabling the money to be accessed before a child turns 18.

While talks continue between trade bodies and the Government over changes, Mr Turner told This is Money it was ‘disappointing that nothing has changed for so many years’, even if he ‘remained hopeful that a new process will be agreed shortly for both CTFs and Junior Isas’.

Jon Lee, head of investment at OneFamily, which looks after around a quarter of all Child Trust Funds, said: ‘We believe this is an important issue that needs to be urgently addressed, to ensure that all teenagers have equal access to the full balances of their child trust funds.

‘I’m pleased that our industry bodies – TISA, the Building Societies Association and UK Finance – are working with the Ministry of Justice to draft new industry guidance that could potentially help many families. 

‘All those involved want this situation resolved as soon as possible; but we have not any timings promised as yet.

‘In the meantime, we’ll continue to review each case sensitively and with compassion. Everyone’s situation is different, so in certain circumstances it may be possible to release funds if sufficient proof of identification can be provided by the person responsible for managing the young person’s finances. 

‘We encourage customers who may be in this position to get in touch so that we can assess the support they need.’

A spokesperson for the trade body UK Finance said: ‘We are working with the Government and other trade bodies to strike the right balance between ensuring that all children owning a Child Trust Fund are able to access it, with appropriate protections that are designed to help more vulnerable young adults as they become eligible to access their funds.’

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But in the meantime the Government has continued to insist that families must go through the expensive and time-consuming process of applying to the Court of Protection.

With as many as 200,000 children caught up in the problem, Mr Warford said that could result in as many as 25,000 a year having to go to court over the next eight years. 

HMRC also told The Telegraph in March this year that ‘funds could be accessed if Power of Attorney is in place’, a stance which Mr Warford described as ‘completely absurd’.

He told This is Money: ‘It’s totally a red herring. A Power of Attorney is something that you give. I can give it to you, and you can give it to me. It’s not something which you can unilaterally take from me.

‘For me to be able to give it to you, I have to be 18 and I have to have a relatively high level of mental capacity. If I had that high level of capacity, I could manage my CTF, so the access problem does not come into question.’

The Ministry of Justice insisted to This is Money there were instances where a child who did not have the capacity to withdraw their Child Trust Fund money could still have the capacity to make a Power of Attorney.

A spokesperson said: ‘The requirement for a parent or guardian to have obtained legal Power of Attorney or an order from the Court of Protection is vital in ensuring vulnerable people are not exploited.’

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