Child trust stumble parents found their funds but have feet
After an unpromising start, the £250 vouchers are encouraging a new savings habit in Britain
Sunday 19 March 2006
It's the child trust fund's first birthday in 18 days, but the celebrations on 6 April are expected to be muted.
Since that start date, just 64 per cent of the 2.3 million CTF vouchers sent out have been invested - though Treasury officials stress that nearly three-quarters of the vouchers sent in advance of the CTF's launch to families with babies born on or after 1 September 2002 have been opened.
Meanwhile, parents continue to struggle with the decision over where to invest the £250 voucher (£500 for the poorest families), which will grow tax-free. Up to £1,200 a year can be invested on top.
Mistrustful of stock markets and fearful of losing money in an equity-based CTF, many have opted for a safer cash account instead. Yet financial advisers point out that over the CTF's 18-year life, shares will probably ride out the economic ups and downs to outperform returns from a deposit account.
There has been criticism, too, of the fees charged to run "stakeholder" CTFs, which invest in the stock market but switch the money into cash once the child turns 13. Many of these funds simply track an index such as the FTSE 100, but annual fees of up to 1.5 per cent, compared with 0.5 per cent on many regular tracker funds outside the scheme, will eat into returns.
Despite these teething problems, there is evidence that CTFs are helping to kickstart a savings habit among lower-income families. One in four children living in Britain's poorest households have their CTF topped up every month by their parents, according to research by the Children's Mutual friendly society.
Its findings are backed by the Institute for Public Policy Research (IPPR) think-tank, which says genuine signs of a new "savings culture" are emerging in low-income homes.
Those families who earn less than the official "low income" threshold (£13,480) in 2004-05 will qualify for the £500 voucher.
Dominic Maxwell, research fellow at the IPPR, which was instrumental in devising the Government's CTF policy, says: "Of course wealthy parents are saving more, but it's not the case that all those in lower-income households are just putting the voucher in and leaving it."
Mr Maxwell adds that early indications suggest the number of parents saving for their children's futures across all income bands has doubled since the CTF's introduction - a statistic that is supported by David White, chief executive of the Children's Mutual. "Before CTFs, about one in five children had long-term savings plans set up," he says. "It's now at least 40 per cent."
More money is being put aside too. "Parents who had savings plans for their children [with us] before were paying in an average of £16 a month," he adds. "It has now risen to £24."
So much for the raw data. But how have individual families actually been managing their children's accounts? Mr White says parents are increasingly using a range of imaginative tactics to boost the growth potential of their CTFs, which means the investments don't have to rely solely on top-ups from their own pockets.
One recent CTF application was investigated when it arrived accompanied by not one but 30 cheques, he recalls.
"It turned out there had been a baptism ceremony and the parents had asked that any guests who were unsure of what to buy should put something into our CTF instead."
The mutual also received a rash of one-off payments after Christmas, suggesting that the perennial cop-out of relatives unable to think of a suitable present - the cheque - is finally being put to good use.
Anecdotally, many other CTF providers report that direct debits and standing orders are being set up across all income bands.
Of the 90,000 equity-based CTFs managed by Nationwide building society, a third are topped up regularly, it says.
Nationwide's latest Children's Savings Report suggests that equity-based CTF accounts supplemented by the maximum £1,200 annual contribution could be worth £40,000 in 18 years' time, assuming growth of 7 per cent a year and 1.5 per cent charges.
Children's charities welcome the findings of the Children's Mutual, albeit with reservations. "Three years ago, people were saying 'nobody's going to save' [with the trust fund], so it's very exciting," says Natalie Cronin, the NSPCC's head of policy and public affairs.
"But [we] still [have] concerns about the relatively low take-up, and this points to additional work that the Government needs to do on financial literacy."
However, Ivan Lewis, the Economic Secretary to the Treasury, believes low-income families are getting their heads around the CTF.
"The fund is about changing the culture around saving - getting people to think differently about their children's futures, to have aspirations for them," he says.
"If the early indications coming from providers prove correct, [we'll be] very pleased."
'It should be a tidy sum'
A new savings habit is slowly being formed with a new family.
Ben Benatt, 39, and Jo Noble, 34, from east Sussex have a combined income of £28,000. They have been making regular payments into a Nationwide savings account for their son, Harvey, two.
"We took out a fund for Harvey when he was born, and are paying his child benefit straight into that - it should be a tidy sum now," says Ben, a self-employed ecologist who does consultancy work for developers and local authorities.
He and his wife have yet to start making regular top-ups to Harvey's CTF - an ethical cash deposit fund with the Co-operative Bank - but they plan to do so shortly.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Scottish independence: Ireland since 1919 is a lesson for Scotland in what a Yes vote means
- 2 British tourists 'murdered' in Thailand: Pair's bloodied bodies found naked on Koh Tao beach
- 3 Lego breaks out of the toy box and heads for the gallery
- 4 Vogue under fire for 'Big Booty' article
- 5 Julian Assange and Edward Snowden join piracy mogul Kim Dotcom’s political campaign in New Zealand
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
£23m Birmingham cycle scheme is attacked by Tory councillor for not catering to the elderly
Salmond accused of laughing off national debt with ‘what are they going to do: invade?’ joke
iJobs Money & Business
£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...
Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)
£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony