More than half of the UK’s low income families are not taking advantage of the Government’s free cash handouts for their children, according to research from Engage Mutual.

Child Trust Funds are an initiative by the Government that provide a £250 savings voucher for every child born after September 1 2002 to start a savings account, and then another £250 voucher when the child turns seven. Children from lower income families are entitled to a further £250.

Anyone can save into a Child trust Fund on behalf of the child – up to a maximum of £1,200 each year – and income and gains in the account are free from tax, but Engage Mutual, one of the UK’s leading Child Trust Fund providers, has found that 55 per cent of low income parents not taking advantage of them.

If parents fail to use their child’s voucher to open a Child Trust Fund account within 12 months of issue, the government opens one in the child’s name, but the child is unlikely to be having additional contributions made.

Furthermore, by simply relying on the government’s choice of account, parents are not taking advantage of the growing competition between Child Trust Fund providers, so may not be getting the best returns.

“This lack of awareness is a lost opportunity for low income children,” explains Engage Mutual child trust fund spokesman, Karl Elliott. “Without regular ‘top ups’ from parents, grandparents and other givers, the final savings pot will be a fraction of what might have been achieved.”

Engage Mutual says it is aware that for low income families, topping up a child’s Child Trust Fund account may be difficult to budget around, which is why the provider’s account is one of only four on the market with a minimum ‘top up’ contribution of less than £10.

Engage hopes the fact that parents and grandparents will be able to top up by whatever they can afford will encourage them to save for the child’s future.

“With income inequality still a major issue and tough times for the foreseeable future, it is important that we raise awareness of the tax-free cash handouts so that the next generation does not miss out,” said Mr Elliot.

Tax Incentivised Savings Association (TISA) director general Tony Vine-Lott agrees. “Increasingly parents are committing to save for their children’s futures using a Child Trust Fund, but I would like to encourage even more – grandparents, aunts and uncles, family friends too – to put regular amounts into Child Trust Funds,” he said.

And, says Mr Vine-Lott, it is not just kids that could be missing out by not taking advantage of government handouts – expectant mums could be too.

TISA is encouraging mothers-to-be that are expecting on or after 6 April 2009, to make sure they claim the £190 Health in Pregnancy Grant. The grant, which does not depend on household income, is intended to help all mothers stay fit and healthy in pregnancy, but can be spent or saved as they choose.

“The financial ‘squeeze’ is making life difficult for many families. The Pregnancy Grant is a one-off payment that will help mothers at an expensive time, but it is also important to look ahead too,” he said.

© Fair Investment Company Ltd