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I have a strong suspicion that my daughter — who got her A-level results this week — hasn’t the foggiest idea who Gordon Brown is. I suspect most of her class don’t either. But I think many of them might want to thank him in the coming months for launching a children’s savings scheme called the Child Trust Fund (CTF), when he was chancellor.
Every child born in my daughter’s academic year was entitled to a £250 voucher, which parents could invest in a shares or cash account. They got another £250, when the child got to age seven. Children from low-income backgrounds were given higher amounts and the scheme encouraged family members to add up to £1,200 a year.
In 2011, the scheme was closed to new entrants, but its legacy survives in the form of the Junior Isa, a tax wrapper that comes without the government vouchers but with higher annual saving or investment limits — up to £9,000 tax free in the current tax year. Many CTFs, like my daughter’s, converted to a Junior Isa.
We contributed over the years so that, after she turned 18 and finished her A-levels, she’d be in a fortunate position for whatever she chose to do next. Though not as fortunate as some, it turns out.
According to a new freedom of information request, the UK’s top Junior Isa investors have amassed pots in excess of £750,000. The top 50 children are sitting on pots averaging £761,000 — which means they can expect to become millionaires in their 20s, according to wealth manager RBC Brewin Dolphin, who requested the data from HM Revenue & Customs.
More than 370 have pots bigger than £200,000 — up from 40 last year. And the number with more than £100,000 in their pot has more than trebled in a year, to 1,910.
How do you even get to such sums? To turn the 17 years of maximum contributions (plus the £500 from the government CTF) — which totals £63,436 — into £761,100, would have required annualised returns of just under 32 per cent over the period, says RBC Brewin Dolphin. Who’s running these kids’ investments, Warren Buffett?
Their parents may be professionals, muses investment manager Rob Burgeman. Even so, this must have entailed a very high-risk strategy — perhaps putting it into one high-growth stock, such as Nvidia. Even with some of the tech giants, such as Microsoft or Amazon, you would still have had to trade frequently, timing the markets correctly, to get that result.
Or perhaps their parents worked for, or founded, small Aim-listed companies, and had the confidence to back the business (within insider trading rules, of course).
Whatever the reasons, Burgeman says: “This kind of turbo-charged growth simply can’t be generated through patient cash saving.” No kidding: over the same time period, the same contributions to a cash Jisa would have grown to £66,000.
Thankfully, I can tell my daughter we didn’t leave hers in a cash product, where the money would have struggled to beat inflation. But, hands up, I probably could have done the investing better: we went for a tracker because I didn’t want to risk underperforming the average. Hindsight makes me think I was too cautious. But I’d also like her to learn that when it comes to investing over the long term, compound interest means mediocrity is not a bad thing to aspire to.
At least we didn’t leave her money in a legacy CTF product where it could have continued to rack up annual fees of 1.5 per cent, eating into the returns. Or lose it entirely. An estimated £1.7bn in CTFs is unclaimed, with providers saying families have moved and are untraceable. I’ve told my daughter: her friends can check if they have any CTF money using their national insurance numbers and the government website.
Of course, parents and grandparents were investing for their children long before the CTF was launched. But what the CTF did was make sure that the money absolutely belongs to the child once they turn 18 — hence the reason to thank the former member for Kirkcaldy and Cowdenbeath.
My daughter’s money has now transitioned to an adult Isa, worth enough to be a substantial help with university fees. But if she wants to splash it all on interrailing or learning to fly a plane, then that is her right.
Ideally, I’d like her to continue to invest it. She could keep it in the tracker fund and draw it out gradually, and so get comfortable with the ups and downs of the stock market.
I’d also like her to learn about different types of investments. Interactive Investor, an investment platform, found that matured Junior Isas have a slightly higher weighting to investment trusts and exchange traded products, which are good sectors to explore.
She could even have fun looking for opportunities to invest small amounts in different stocks: most likely in brands she already knows: JD Wetherspoon is not a bad shout.
The Jisa rich kids may have won the investment lottery, but pots of much more modest means can still encourage youngsters to practice some modest personalisation of the portfolio, laying the groundwork for them to plan their financial future with confidence.
That is worth as much as a university degree in itself.
Moira O’Neill is a freelance money and investment writer. Email moira.o’[email protected], X: @MoiraONeillInstagram @MoiraOnMoney