Child savings 'could affect benefits'

The government's Child Trust Fund was hailed as a good way to build up a savings pot for young people.

But there are concerns that money accumulated under the scheme could count against people claiming means-tested benefits.

The Treasury has admitted that this is a possibility, but says there's plenty of time to work out a solution.

The fund was designed to encourage a culture of saving among low-income families.

HOW THE CHILD TRUST FUND WORKS Every baby born after September 2002 will get £250, rising to £500 for children in lower income families. Relatives can pay in up to £1,200 a year tax-free. Children will receive another top-up on their seventh birthday - the amount has yet to be decided.

As well as £250 from the government to kickstart the fund, relatives can contribute.

But Christine Ross, head of financial planning at SG Hambros, says the scheme could backfire.

"If children do have that money when they go into further education at age 18, it could be that whatever the grant position is or low interest loans at the time, it could count against them," she says.

"But on the other hand, that's the way of life in all sorts of benefits at the moment.

Extra help

"If you don't have a lot of money and need extra help obviously that's not going to be given to people who have extra savings.

"They're going to have to spend it first before the state chips in."

Christine: Needs sorting out now

Treasury officials say the first fund won't be cashed in for 17 years, so there's no rush to work out the finer detail.

But Christine Ross disagrees.

"Frankly, If people are going to save I think they have a right to know what the situation is going to be," she argues.

But she concedes: "I still think it's important that people save and have choices rather than say 'I won't save because I might get some benefits' because we don't know if there will be any benefits in the future."

She thinks the government could adopt the rules used in the case of pensioners.

"If you save for your retirement through an occupational scheme or a personal pension, a certain amount of that isn't taken into account before you look at other benefits and allowances," she explains.

"They need to look to exclude what's been saved through a Child Trust Fund so as not to disadvantage those people who have bothered to do something about it and saved."