Over the coming weeks, parents of eligible children receiving child benefit will receive vouchers for the payment, which must be invested in a Child Trust Fund account. It will be a tax-free savings scheme which will give each child born since September 1, 2002 a payment of between GBP250-GBP500. Under the scheme, parents, relatives and others can top up the account to the value of GBP1,200 per year.
The scheme has been widely criticized in advance by banks and consumer associations. Several large providers are not offering the schemes, such as Standard Life, Prudential and Norwich Union because they cannot see significant profit in them. Consumer watchdogs meanwhile have complained that parents lack sufficient information to make a meaningful choice between schemes.
However much of this criticism is premature. While some big names are not offering the funds, there will be over 70 providers for parents to choose from including high street names such as Abbey and NatWest, and highly regarded friendly societies such as the Children's Mutual and Liverpool Victoria. Unlike larger organizations, the friendly societies are looking beyond immediate financial concerns to support the social aims of the fund in giving all Britain's children a start in saving.
There are also encouraging signs that many parents intend to save in the schemes. While approximately two thirds of UK children currently have no formal savings, a recent survey by YouGov found that a high proportion of parents (60%) say they will save between GBP5 and GBP100 a month in their children's CTFs, and 38% of these say they are likely to save more over time. The government is launching promotional and educational campaigns to try to convert these good intentions into actions. If it succeeds it will result in a revolution in children's saving in the UK.
The financial services industry should drop its perennial cynicism and support the scheme's laudable aims to create a generation that understands the value of saving as well as spending.