Child trust funds are being axed to save £520m.
Chancellor George Osborne this week set out £6bn worth of spending cuts, which saw the new Government change its stance on child trust funds.
The coalition agreement, published earlier this month, stated that the Government would “reduce spending on the child trust fund and tax credits for higher earners”, leading many to believe CTFs would be retained in some form.
The Conservatives planned to restrict CTF payments to the poorest third of families and the disabled while the LibDems wanted CTFs to be scrapped.
The news that CTFs will be axed is a blow for Capita, which administers around 35 per cent of the sector.
F&C director and head of corporate affairs Jason Hollands says it is better to scrap CTFs than continue the scheme for those on low incomes.
He says: “We have been consistently clear that a watered-down CTF restricted only to those families least able to top up the accounts would have made this a commercially unattractive outcome for many plan providers and done little to shape a savings culture. The good news is there is no impact on the ability to top up existing accounts and those which will be issued prior to phasing out.”