Child Trust Funds rules take effect

The Child Trust Fund (CTF) draft rules were revised before they came into force on 1 December 2004. Firms will be expected to provide a “balanced comparison” between stakeholder and non-stakeholder CTF accounts. The equity-based stakeholder CTF variant is subject to statutory minimum standards that include: cost-free transfers between accounts and providers (less stamp duty and dealing expenses); minimum £10 subscriptions; asset diversification and ‘lifestyling’ (use of investment strategy to progressively minimise variation or potential variation in capital value of the account); and a maximum annual management fee of 1.5% of fund value. Non-stakeholder CTF products may be equity-based or cash deposit accounts (now to be available through credit unions) which are not subject to minimum standards.The FSA has aligned its rules with the requirements of the Child Trust Funds Regulation 14(3), namely that firms include “a statement that a stakeholder account is available from a named alternative account provider”; a “detailed description of that stakeholder account”; and “sufficient information” to enable the applicant to go the alternative CTF provider. Firms must make clear that money invested can only be taken out by the child once he or she has reached the age of 18.The regulator has also provided additional explanation on how the cancellation rules will apply to CTFs. The new funds will be available from April 2005 for children born on or after 1 September 2002. The Government will provide £250 towards each CTF purchase.