Child Trust Fund "Injustice" and Pension Opt-Outs

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1:24This is not a recommendation or offer to buy, sell or attain any specific investment or service. Hello, welcome to this Moneybox podcast. Half a million people a year are giving up free money from taxpayers and their employer, and they can never get it back. Pensions Administrator Capita has more apologies than solutions as it breaks its latest promise to Parliament. And a new ISA is planned to help first-time homebuyers. So will it be any better than the two that went before? But first, Parliament was asked this week to help tens of thousands of young adults get access to their own money. It's sitting in the state-backed child trust funds set up more than 15 years ago with contributions from the government, parents and other relatives.

2:11But because these young people have learning disabilities, the legal process for getting hold of their own money can cost more than the couple of thousand pounds typically in their fund. It's a story we've covered on Moneybox several times over several years. But there is some hope this week that a solution may be found. Here's Jean, whose 23-year-old daughter Emily is affected. The fact that Emily can't access her own money, I think, is an injustice. Our children face a lot in their lives and everybody should be working together to support them. Our Moneybox reporter Dan Whitworth is here and Dan, Emily waited nearly five years, I think, to get hold of her own money.

2:51But this week, you heard of some potentially significant developments. Yes, Paul. So these government-backed child trust funds, well, they were open for every baby born between September 2002 and January 2011. And for most, when they turn 18, it's a really simple process of accessing the money. But for young adults with learning disabilities, it's far more complicated. Their families and carers have to apply to the Court of Protection, which is complex, time-consuming and can be expensive. That's the official route. But earlier this week, for the first time, a bill was put before Parliament to find a solution to this by the Liberal Democrat MP John Milne.

3:30These are families who have already been caring for their disabled child at great personal sacrifice for 18 years by the time they realise they can't access the fund. The mere suggestion that the parents might then abuse their position and spend the money on themselves is appalling, yet that is the implied position of the law. As well as this bill, campaigners are due to meet Justice Minister Baroness Leavitt next week with other options on the table too, to bring to an end what campaigners describe as a clear injustice. Some financial firms which administer some of these trusts have taken the lead on this and are now subject to common sense checks and balances, allowing parents and carers access to the cash.

4:10but it's very hit and miss and of course makes for a wide variation in how these young adults are treated. Now Jean actually managed to get hold of Emily's money after years of waiting. If I'd have been able to access her money at 18 then it would have been a pot of money sat there ready for when she moved on and it would have given me a lot more confidence to think right she's got some money we can set up a home for her it's there waiting to be spent because it was never going to be spent on frivolous things you know she doesn't need frivolous things she needs furniture she needs bedding she needs clothes you know she needs money to go out with but I couldn't at 18 so we just did it as you do families do they pull together they they got her in there financially we did it but if the money had been there at 18 as it is with other 18 year olds it would have been a lot more help to me then than it's subsequently been.

5:06Well, with me in the London studio is Andrew Turner, who has been and indeed is one of the most prominent campaigners for change, initially on behalf of his son, Mikey. Andrew Turner, what solutions are now being discussed, as you understand it, that would help these families access their own money? Well, thank you, Paul. The meeting on Wednesday with Baroness Levitt really is the first opportunity we've had in six years since I started campaigning to talk about solutions. One of the solutions Dan mentioned just now, which is where a number of banks and building societies since 2021 have been releasing funds to parents, providing they can prove their circumstances using existing documentation is a much more user friendly and a much simpler way of accessing these funds.

5:50And that is one of the solutions on the table for discussion on Wednesday. May I ask you about that just briefly? they take a bit of a risk though don't they because if it all does go horribly wrong it's their responsibility are you seeing more of them do that? We are Paul I think it is at the firm's risk but what that does it's quite a healthy mechanism for ensuring there is proper scrutiny around checking all of the documentation that parents are providing and it has worked very successfully we estimate it's helped over about 6 ,000 families since 2021 and released millions of pounds So it is a proven solution.

6:28So I interrupted your point. So what's your other solution? I was going to say, I mean, there are a number of firms and banks that have decided not to adopt the process yet. We're hoping to encourage them to do so. And I think if the government gave the green light to this scheme and approach, then I think they would definitely come on side. But what it does mean is that parents are facing a lottery. So if you can't justify going to court, which most parents can't because you say the sums of money involved in the effort is too great, then basically if your finance firm will help you, you're winning.

6:59And if the finance firm won't help you, those funds for your child are being locked away. Now, we had a bill in Parliament this week. It was a 10-minute rule bill. It's not going to get anywhere, is it? 10-minute rule bills don't. But they're ways of putting pressure on the government or making them see the need for change. In the politest way, Paul, I hope you're wrong. I think the 10-minute rule bill is essentially a legal framework that my local MP, John, put down. He made an excellent speech really covering all the reasons why we need a change here. It would provide a framework for a solution, and if the industry process, for example, was chosen at our meeting on Wednesday, then essentially that would need some legislation.

7:40So what John has done is to put down a bill which the government can pick up off the table and can use as a way of taking this forward, and I hope they do. And you mentioned a meeting on Wednesday. That's with the Justice Minister, Baroness Leavitt. What do you hope will come out of that? Well, first of all, can I just say Baroness Leavitt has been incredibly empathetic and understanding on this issue. She really understands it. So we're very grateful. You think you've got a minister on your side? Absolutely. And I've dealt with 10 ministers since 2020 on this issue. So it's very refreshing. I think what I want to see from the meeting I want to see our children front and centre in that meeting it is all about the best interests of our children the current court protest is supposed to protect them but in reality it's just preventing access to these savings accounts so we need to think about the position of the children and in particular the parents who are responsible for their support and obviously I'm looking forward to a solution coming out that will really give everybody in that meeting confidence it's going to work.

8:40You've obviously got some hope that you have now crossed a barrier on this. What about the charities and the other families that you're working with? What's their reaction? I think all of us are hopeful. But being candid with you, Paul, I think a lot of parents have been hearing lots of fine words from the government over the last five years and from a succession of ministers. And it really is time now to turn those words into action. and obviously with the potential for a new Prime Minister, if Andy Burnham is our new Prime Minister, what I would say to him and the government is, please, if you're looking for quick wins, this is a fantastic quick win for you.

9:16It will help potentially 80 ,000 disabled young people access their savings. It will encourage parents to invest money in junior ISIS, which is also affected by this problem. That's a really big prize. Andrew Turner, a good message there. Thanks very much for talking to us. And Dan's still with us because this wasn't the only development Dan on child trust funds this week? No it wasn't so 6.3 million of them were created in total and estimates Paul suggest 750 ,000 of them have still not been claimed leaving a total of 1.6 billion just sitting there that's an average just over 2 ,000 per fund so the government set up a task force bringing together financial providers to try to find the owners of these funds now as always the proof will be in the pudding but if you were born between September 2002 and January 2011 or know someone who was they will have one of these accounts and there will be money in it so go to gov.uk that's the government website online and search child trust fund you'll be able to find all the details it really is that simple and there could be some serious money waiting for those young people thanks Dan money that these new adults could do with I'm sure New figures reveal that in a single year, half a million people said no thanks to joining a workplace pension.

10:35Like everyone taking up a new job, earning enough, they were automatically enrolled into a scheme. But they opted out, as you can in the first month, to give up the free money towards their retirement from the government and their employer. These latest official estimates are for five years up to 2023, and they show nearly one in ten workers refused the workplace pension, a proportion which shows a rising trend over that time. The figures came from a Freedom of Information request by Lubbock Fine Wealth Management and, worryingly, show that the biggest group opting out are people in their 20s, the ones who stand to gain the most out of being in a pension.

11:12Andrew Tricker put in the FOI. It's not really surprising to me that young people see pensions as so far in the future that they've got other priorities first. The challenge for us all is for them to limit the continual opting out because you can do it every three years. You need people to ultimately see that if they're not saving for their pension, they need to be saving in some other environment for their financial future. Listener, Carol's husband is one of those who did opt out of auto-enrolment, but that's causing them worries as they draw nearer to retirement. He opted out for a few years.

11:46We just could not afford it. We rejoined, he rejoined, 2021. Now at 59, it's not going to give us a decent income, but we always felt paying off the house was a better option. And Tom from Manchester is in his 20s. He's thought of stopping his pension contributions, but he decided not to. You know, obviously trying to buy a house and stuff like that, that's playing in my mind a little bit. I'm also now, I feel like I've got to the point I'm like mid-20s, I'm looking at my career a bit more, I'm making the most out of the money that I'm making. For me, I've stayed with it because I know that that money will grow with time and that that pension that I'll eventually get will be a lot bigger than if I start now as opposed to waiting.

12:28Well, with me in the London studio is Matthew Blackstad from Pensions UK, which represents nearly all companies and other pension schemes. Matthew Blackstad, half a million people, nearly one in ten, opting out of their workplace pension. Will they come to regret it like Carol and her husband? Well, as you say, Paul, they are giving up on free money because you effectively double the amount that you pay in through tax relief and what your employer pays in. However, I think it's really important to listen to what people like Carol were saying. We know from talking to many, many employees that people really value the way this all happens automatically.

13:01You don't see it in your take home pay. And so it's all done for you. But there will be times for some people where it simply isn't affordable. So clearly there's a trade off people have to make between the present and the future. Yes. I mean, Carol and her husband made that choice. We heard two from Tom in his 20s. He is still playing in, but he did point out the pressures of buying a house that made him think of stopping. And other young people, they're paying high rents. They're paying towards their student loan. They're expecting a baby. There are so many financial pressures now, aren't there?

13:28There are. That's right, Paul. And I think we need to think about this in the context of the fact the government set up a new pensions commission, which is looking at whether people are saving enough. Really, the levels of saving aren't enough to deliver good standards of living in retirement. and so many are saying that, including us, that contributions should rise and in that context we're really concerned to make sure that if contributions do rise it's not going to be making the system unaffordable for too many people. No, but that's part of the problem, isn't it? That if contributions rise both employees and employers presumably would have to pay in more and they're struggling already.

14:01Employers particularly are saying it costs too much to employ people and this would put that cost up. What is the solution to the fact we're not paying enough in? Well, unfortunately, the money does have to come from somewhere. So we've done a lot of research on this recently, looking at the levels contributions should rise to. It really reinforces what we've been saying for a while, which is it needs to be more like 12 % than the 8 % that people currently pay. And I think when we talk to employers and employees, they both recognise more needs to go in. Employers don't necessarily like seeing the cost of employment rise.

14:32It will be a challenge. But they understand that their workers aren't saving enough. I think the key thing is it needs to be phased in over time. we need to have a clear map forward for when and how these changes are made. Yes, I mean 12 % and of course at the moment you say 8 % but that's only on a band of earnings, it's not on all your earnings but 12 % on all your earnings I suppose might just be enough. I think it's what they've done in Australia. But if it's split evenly, 6 % each for employers and employees that is going to be a big change that they've got to afford. It is and if it's met evenly then that means for employers that would double the amount they're currently paying in.

15:06So as I say you can't do that overnight. But in Australia, as you mentioned, it's 12%, which is totally made up by the employer. Here, I think when we talk to people, we have a different system. People appreciate the social contract where the worker pays in and then they get an employer contribution to match that. But given the level of cost of employment that exists at the moment, as I say, for employers particularly, that would need to be phased in. And with that 12 % that you would recommend, what sort of lifestyle would you have? Because you also do this research on what you need in retirement, don't you?

15:36That's right. So we published the retirement living standards annually, which you can find if you search for those online. The idea behind those is to give people an idea of what sort of lifestyle they might be able to afford on different levels of earnings. And at the moment, for instance, if you're on the middle income, round about£39 ,000, if you put 12 % contribution through your working life on top of the state pension, that would roughly give you about two thirds of the amount that you're earning in working life. It's a little bit below what we would call the moderate level of retirement living standards, but well above the minimum.

16:06So even 12 % is a bit below what you call moderate. But let me just ask you finally, if someone listening is considering opting out or knows someone who is or has done it, briefly, in a word, what's your message to them? Think very hard about it because you really don't want to miss out on that money from your employer. Thank you very much, Matthew Blackstack. Investing with Schwab is like spending a Saturday at a great farmer's market. You can fill your reusable tote with a bit of everything. Maybe you go for some free-range self-directed investing, or perhaps you pick up a few farm-fresh trades while you peruse.

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17:13See what adding futures can do for you at cmegroup.com forward slash podcast. Derivatives are not suitable for all investors and involve the risk of losing more than the amount originally deposited and any profit you might have made. This is not a recommendation or offer to buy, sell, or attain any specific investment or service.

17:32Sorry, sorry, sorry, sorry, sorry, sorry is not the hardest word for pensions administrator Capita. We are sorry for the worry and frustration experienced by any members. We are sorry for the worry and frustration these delays are causing. We are deeply sorry for the worry, distress and frustration these issues are causing. Well, just some of the statements Capita sent to Moneybox about how it has run the civil service pension scheme. It's also apologised to MPs and some customers. Dan's still with us. What's Capita had to say this week, Dan? We apologise for the frustration experienced by any members.

18:12Again, this week, Paul, Capita broke its promise to MPs that service levels would be normal by the end of June. And do you know what actually that means? it is really, really terrible news for the thousands of retired and retiring silver servants still waiting for things like just their lump sum payments, their monthly pension payments and spending hours on the phone trying to get an answer and solve the problem of having no pension. So it's causing real hardship as you've often pointed out on this programme Dan. What's going to happen now? Well this Wednesday there is a very rare joint parliamentary committee hearing when the most senior people at capita and the Cabinet Office, which is actually responsible for the scheme, answer questions from cross and frustrated MPs.

18:58Expect fireworks. Perhaps another apology. Thanks very much, Dan. A lifetime ISA is a subsidised savings plan which at the moment is used to buy a first home, with the government boosting any savings by up to£1 ,000 a year. But the government has announced major changes in it after revealing that in 2024 more people paid a penalty for taking money out of a Lysa, lifetime ISA, taking money out for the wrong reason than actually used it to buy a first home. And one reason for that is there's a cap on the price of that first home. BBC London's Megan Owen did this report for Moneybox. The lifetime ISA in theory has a noble aim to help get first-time buyers on the property ladder.

19:45But there are caveats, including a£450 ,000 price cap. Now, if savers are unable to find a property below the cap and need to withdraw the money, they face a financial penalty, which costs them 6.25 % of their savings. That cap is the same regardless of where you live in the country. So in more expensive regions, it can throw a spanner in the works. Fraser and his partner Sophie both started saving into lifetime ISAs a few years ago with the intention of using the funds to get onto the property ladder in London. In order to buy what they call a modest two-bedroom flat in Tower Hamlets for£521 ,000, Sophie withdrew her money from the Lysa.

20:27I ended up losing around£3 ,500. People who don't live in London, they might think that we're talking about luxury properties, big properties, multiple bedrooms, gardens, that sort of thing. that's not what we're talking about at all. We're talking about one in two bedroom flats that cost significantly more than 450k. They're not alone. Treasury data shows that the number of people withdrawing their money is far outpacing those using it to buy a house, even though they risk losing some of their money. Calvin, who's been saving in the lifetime ISA for two years, says that's the key thing that must change.

21:07Life can happen. You could lose your job any day. I think especially in London, if you haven't got a safety net, which could be family or good credit or a credit card or an overdraft, I think that can be tricky. Calvin is just one of the people hoping that proposals for a new first-time buyer ISA will address some of these issues. Well, listening to Megan's report is Sally Mitchell. She's a mortgage advisor at Versed Financial. Sally Mitchell, even the Treasury now admits the present lifetime ISA or LISA isn't working. There are caps on how much you can pay in, a cap on what you can buy. Just tell us what changes the government's planning.

21:45Well, we're yet to find out the actual detail, of course. It's only just gone out for consultation. And things like the price cap, the bonus payable and the limit that you can pay in during the year has yet to be decided. But the main changes will be that there's no upper age limit, which is really good. I think that reflects that the first-time buyer is getting older. At the moment, it's 40. You can't begin one after 40 or pay it after 50. That's right. That's right. That's absolutely right. So I think the changes in that element are very, very good. It gives a bit more freedom, but I'm yet to be convinced.

22:26Yes, I mean, that's one number we know about the age. That's it. That's all we know. The other numbers we need to know, don't we? But they are getting rid of this withdrawal penalty. Now, that's something I've never understood the reason for, because if you take it out for the wrong reason, quote unquote, you not only lose a quarter, you not only lose the subsidy that's been paid and you also, as Megan said, lose some of your own savings as well. So you're struggling to save up enough and far from giving you more, they're giving you less. It does feel like a slap, doesn't it? And from my experience dealing with clients in this situation, they had no idea, no idea that the compound interest you receive is actually affected by that withdrawal penalty.

23:09So it's like just double jeopardy. It doesn't seem fair. Were you surprised to learn that from these new figures that more people pay a penalty than actually use a license for the purpose it was envisaged for, which is buying a first home? Yeah, I wasn't aware of it, but actually thinking about it, I shouldn't be surprised at all. The last few years have been so strange. People have undergone so many changes and life is not linear. People have had to dip into savings for all sorts of reasons. Yes, life happens, as Calvin so wisely said. You must come across a lot of that. People who come to advice think they're set up and then something happens, whether it's something nice like having a baby or something bad like losing your job or splitting up with your partner.

23:50I mean, all these things affect the decisions you make, don't they, on buying a house? Yes, they do. And we've got stamp duty to consider, high rents, student loans. There's also much. And also, as mentioned earlier, paying into a workplace pension. It all eats away. And we've heard about all the pressures on that as well. Now, one thing we do know is that at the moment when you put money in, the Treasury bonus comes that year, doesn't it, to boost it. So you're earning money on that as well. But under the new scheme, that won't happen. and you won't get the bonus, this extra 25%, unless and until you use it to buy a house or a home that's within the scheme.

24:29So that is a big change. It is a big change. It means absolutely no risk for the Treasury, of course, which is probably the reason behind it. It does make sense, I think, in terms of administering the scheme. And you have to actually, it's at the point of exchange that you would potentially receive that bonus through your conveyancer and your first-time buyer, ISA, provider. Yes. And it's not going to happen for nearly two years, till April 2028, they say. What should people do in the meantime? And what about people with lifetime ISA? Should they keep them, pay into them? And what about people who might think, oh, that's a good idea, I'll start one now, but two years I'd have to start something else, won't they?

25:12Yeah. I mean, I still think it's worth opening a LISA if you can. definitely even open it with a pound just keep it open because you don't know what's going to happen down the road you might get a windfall whack it into your no lifetime isa if it's not going to be fit for you to buy your first property you do have the option of just putting it away leaving it alone and then when you come to 60 you will hopefully have a nice little lump sum so i think it's still worth it but just be aware it might not work for you for purchasing your first property. Sally Mitchell from Burst Financial, thanks. And to respond to that consultation, search first-time buyer consultation on the gov.uk website.

25:53Closes on the 18th of August. Well, if you're a first-time subscriber, you may not know that the next programme to drop will be our sister programme, Moneybox Live. And next up, Ruth Alexander asks whether AI is a help or a hazard when we ask it for financial information, guidance or even advice, especially when we know it's complicit in many financial fakes and frauds. Well, you can listen to it live on Wednesday afternoons. And of course, Moneybox is also live every Saturday at noon, both on BBC Radio 4, if you can't wait for the podcast. You can send us your experiences and questions about money to moneybox at bbc.co.uk or send a voice note or a message to us on WhatsApp 0306 783 183.

26:39We do read and listen to them all. You might get on the show like Carol did. And of course, let us know about money and AI if you use it. And talking of intelligence and not an AI in sight, in today's podcast were reporters Dan Whitworth and Megan Owen, researcher Catherine London, Joe Krasner, studio manager Matthew Dempsey, our editor is Jess Quayle. I'm Paul Lewis and this was a BBC News Money and Work production for BBC Sounds. And now Ladies in the Dark. I love this series. Silence in Court. I'm Lucy Worsley and in my brand new series I'll be hearing about the women involved in some of history's most infamous legal battles.

27:21Women accused of murder, bigamy and adultery. Fruit of the shocking offence of not knowing their place. With a team of all-female detectives, I'll explore the lives at the centre of some extraordinary courtroom dramas, asking, has the justice system truly changed? Lady on Trial with Lucy Worsley from BBC Radio 4. Listen now on BBC Sounds.

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