The amount of parents making contributions to their children's savings is likely to almost double in five years after the Government confirmed it plans to make an additional payment to its new Child Trust Funds when children reach the age of seven.
The Institute of Public Policy Research said that the Chancellor's proposals to pay a further £250 or £500 to seven year olds, on top of the £250 or £500 they will receive at birth, is likely to vastly increase the number of parents that take an interest in building a nest egg for their child.
The new CTFs are to launch in April, with all children born after September 2002 set to receive a Government hand-out. The first top-ups are likely to be paid out from the end of 2009 onwards, as the first qualifying children reach the age of seven.
Dominic Maxwell, a researcher at IPPR, said a second pay-out from the Government will serve to reignite the interest in child savings among parents who have lost the momentum after their child's initial payment. Like the birth pay-outs, the larger £500 sum will be paid to around a third of seven year olds that come from lower income families. The £250 top-up would be paid to those households on higher wages.
Mr Maxwell said: "This announcement shows that this policy is here to stay. What we think will happen is that by giving children another payment at age seven, those parents who haven't been saving will be kick-started into the habit again."
The Government has also talked of making a third top-up to the CTFs when the child reaches 11 years old. However, with the first qualifying children not set to reach 11 before 2014, the decision is likely to be delayed for several years.
Karl Elliott, director of marketing at Homeowners Friendly Society - an accredited provider of the Government's CTF - said: "This is excellent news for young savers and will go a long way to encouraging families to save. The apparent fact that CTFs will be topped up during the savings process will keep the savings habit to the front of mind and provides an excellent reminder for youngsters and their families to add to the account."
HOW WILL IT AFFECT YOU?
Ten-year strategy includes increasing paid maternity leave to 12 months, more help with childcare, more free nursery education for three- and four-year-olds, and the chance for dads to take "maternity leave" instead of mums.
Limits on tax-free individual savings accounts to stay at £7,000 for stocks and shares Isas, and £3,000 for cash Isas until at least 2009.
WINTER FUEL AND COUNCIL TAX
Pensioners over 70 to receive an extra £50 in 2005 to help with energy costs and council tax.
An extension of the "matched savings" pilot scheme. If it is successful, those on low incomes will eventually be rewarded with £1 from the Government for every £1 they save.
While the Government's policy is to raise tax on petrol every year, there will be no hike this year due to soaring oil prices.
CHILD TRUST FUNDS
Plans for an extra Government handout of £250 or £500 when your child reaches age seven (in addition to the £250 or £500 they will receive when they are born).
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