Brown's Child Trust Funds snubbed by many in City

The largest and best known companies in the life insurance and fund management sector have snubbed the Government's Child Trust Fund (CTF) scheme, it emerged yesterday.

The largest and best known companies in the life insurance and fund management sector have snubbed the Government's Child Trust Fund (CTF) scheme, it emerged yesterday.

Gordon Brown revealed that just 29 providers have signed up to the scheme in time for its launch. While the UK's largest banks and a handful of building societies have agreed to provide or distribute the new trusts, the majority of fund managers and life insurers have opted to stay out of the market, arguing they cannot make a profit with the sums of money involved.

Under the new scheme - for which Government information packs will begin being sent out to parents next week - children born after 1 September 2002 will be given a payment of £250, or £500 if they are from families on low incomes. The Government is consulting on the size of an additional payment to be made at age seven.

Parents will have the option of investing their child's money in either a cash savings account or into an equity- or bond-based investment. All CTF providers will also have to offer a stakeholder plan, which will invest predominantly in equities in the early years, reducing exposure to the market during the five years leading up to the child's 18th birthday.

Among the biggest financial services companies to decide against entering the market are Fidelity, Prudential, Legal & General and Bradford & Bingley.

The Chancellor, speaking at a press conference to launch the scheme yesterday, said: "Of course, when you have a new idea some people will take their time in deciding whether they want to be a part of it. I'm confident that as it becomes established, more and more providers will want to get involved."

In addition to the 29 providers, some 36 distributors - including Boots, Mothercare, Sainsbury's Bank and the Post Office - have signed up to help make the CTF scheme easily accessible to parents.

One of the few fund managers to get involved at the start is New Star Asset Management, which will be the underlying manager for Family Investment's child unit trust. It is possible that further fund management groups will become involved in a similar indirect manner with the scheme.

Mr Brown said that about 2 million vouchers will be sent out to parents over the next few weeks. Children born over the past two years since the qualifying date will get a top-up interest payment of up to £27 to add to their £250, or up to £43 for those who qualify for the full £500.

A national TV advertising campaign will begin next week, with the slogan "What will yours grow into?" A website - www.childtrustfund.gov.uk - has also been set up to field enquiries about the scheme.