Memorandum submitted by Children's Mutual
1. EXECUTIVE
SUMMARY
Positive Results (so far)
1.1 We estimate that more than 1.1 million
children now have open, active, long term savings accounts, owing
purely to the introduction of the CTF.
1.2 Habits are changing positively: compared
to before the introduction of the CTF our research and knowledge
of the market suggest that the savings rate[1]
has increased by more than 50%. The amount saved monthly has increased
from the pre-CTF position by 50%. In addition ad-hoc payments
are being received by cheque and bank credit. We have received
one application with 30 cheques attached to it!
1.3 People like the easy application process
(ie over the phone or via internet) for additional saving after
the initial opening of the account.
1.4 Awareness levels of the CTF amongst
parents with young children are high.
1.5 We believe the CTF could be a major
catalyst for improved financial education.
Concerns
1.6 We have recommended to Government that
a review of the "small print" that consumers receive
from providers takes place. Evidence suggests they are overwhelmed
by it which in turn delays the opening of accounts as families
are unclear about what to do.
1.7 We have recommended Government publications
make it clearer to consumers that the stakeholder product has
key customer protections built in (for example the price cap)
to the point that it is the preferred choice as witnessed by the
allocated accounts process.
1.8 We have recommended providers that apply
to accept allocated accounts confirm to HMRC or FSA their readiness
to accept such accounts in order to ensure that customers do not
suffer detriment.
1.9 We have recommended that the procedures
for describing and opening cash CTF accounts be reviewed.
2. INTRODUCTION
2.1 The Children's Mutual is the country's
only specialist dedicated solely to long-term savings for children
and as such we have extensive and unparalleled knowledge of this
subject. Prior to the introduction of the CTF the families of
more than 200,000 children had started to save regularly with
us for them. The Children's Mutual is ensuring that the CTF is
inclusive and provides the only ethical and Shariah compliant
stakeholder CTF's.
3. KEY POINTS
OF THE
CTF
3.1 Every child born on or after 1 September
2002 will have a much needed "financial springboard"
into adulthood.
3.2 By the next general election we estimate
that something approaching six million children will have CTF
accounts. That means nearly 12 million parents and possibly 20
million grandparents could be involved and keen to take an interest
in the CTF. This provides the opportunity to increase financial
education across a wide-ranging section of the public.
3.3 It is important therefore to consider
how the developments of such a far-reaching policy will affect
the country's savings habits and help address the savings gap.
4. FAMILY AWARENESS
AND RESPONSE
TO THE
CTF
4.1 As far as we can ascertain families
are positive about the idea of the CTF and they display positive
behaviours as outlined in the Executive Summary.
4.2 We believe that those families who are
in receipt of vouchers but have not yet opened an account fall
into two groups. The first group is "very busy parents"
who simply have not got round to opening an account yet and we
are sending reminders we hope will spur this category into action.
We welcome and are fully supportive of the Government's reminder
and advertising campaign. There are early signs that activity
is increasing.
4.3 We believe the other main reason for
not having opened the CTF account is due to parents being confused
by the overwhelming amount of paperwork they have to be sent by
providers. We attach feedback from our consumer/customer focus
groups and it is clear to us that consumers are baffled and confused
by the amount of "small print" that regulations stipulate
they must receive. This will be exacerbated by the introduction
of extra wording to satisfy EU "simplified prospectus"
requirements and the inclusion of a new item to be called a "Quick
Guide", if it does not replace some of the existing information.
4.4 Our view is that with a product like
the CTF, where an account will (compulsorily) be opened and can
be transferred without penalty, the potential consumer detriment
is extremely low and some of the information could be given post-choice.
We have recommended to Government and the FSA that, through working
together, a solution which recognises the unique qualities of
the CTF is found so that saving is made simple and the protection
built into the CTF stakeholder account is used in the way it was
developed—to act as consumer protection from the start.
It is interesting to compare opening a CTF account with other
everyday financial transactions, for example, taking out an unsecured
loan where the process for consumers appears to us to be much
simpler. We think it is also an accepted fact that much more of
the small print on general (eg motor) insurance is issued post-sale.
5. STAKEHOLDER
(THE PREFERRED
HMRC ALLOCATED OPTION
WHERE CHARGES
ARE CAPPED)
AND NON-STAKEHOLDER
ACCOUNTS (MOST
ARE CASH
ACCOUNTS WITH
NO PRICE
CAP)
5.1 We are encouraged that approximately
75% of CTF accounts now open are stakeholder accounts (shares
based) as one of the objectives of the CTF policy is to encourage
people to benefit from the long term growth potential of equities
and lifestyling. However we are very disappointed that 25% of
CTF accounts appear to be in cash and fear that the bulk of these
will have been deposited there unwittingly by less financially
informed consumers who are likely to be the less well-off. It
is misleading not to make people aware of the inflation/value
erosion risks of leaving CTF monies in cash for 18 years. This
could have the effect of a child from a less well-off family ending
up with less in their CTF account at 18 than a child from a better-off
family even where the level of saving is identical.
5.2 The objective of benefiting from the
growth potential of shares should be for all, particularly those
who have not been fortunate enough to have opportunities to save
before.
5.3 We have recommended that the FSA review
sales procedures for non-stakeholder cash accounts to ensure that
consumers are made aware of the inflation risks, charges and relative
limits to its growth potential and that Government literature
on the CTF makes it clear that Stakeholder is the Government's
preferred choice and states the reasons why that is the case.
6. FINANCIAL
EDUCATION
6.1 The CTF is a key catalyst for providing
more/improved financial education both for parents and young people.
6.2 We fully support this objective and
are delighted that Government Departments have both commissioned
research into the market and invited presentations on potential
delivery of financial education. Whatever route is taken on financial
education, we urge that focus is given to financial capability
and not just to the workings of the CTF product itself. For example
children could be asked to consider and learn from the following
(not exhaustive):
— "why have a Child Trust Fund?";
— "why do you think Government
introduced the CTF?";
— "what financial challenges do
you think might face young people when they reach 18?"; and
— "how best can parents and families
help?".
6.3 The CTF is an excellent peg to extend
financial education not only to children but equally importantly
to their parents and other members of the family and their friends.
We believe it is an excellent conduit for those over the age of
18 since information sent to families on the CTF could also include
the importance of savings throughout people's lives.
7. ALLOCATED
ACCOUNTS (AA'S)
7.1 If a family does not open an account
within a year of the voucher being issued, the voucher expires
and HMRC will allocate accounts to approved providers which have
applied to accept such AA's on a rotation basis. We fully support
this process as it is important that children do not miss out
owing to a lack of engagement on the part of their parents/guardians.
7.2 We think that when accounts start to
be allocated demand for help and support, particularly over the
telephone, will increase markedly as families realise they now
have an open account for their child. Most providers will be able
to look after the extra thousands of accounts and give their consumers
the same level of customer support as all their other customers.
Where a provider might only have several hundred CTF accounts
and are then allocated thousands, we are concerned they might
not have the facilities to process and look after these. We therefore
believe an extra level of audit by HMRC or FSA be carried out.
There are not a large number of providers involved and the process
would not be that lengthy to complete. This would ensure consumer
support where it is most needed, ie to help manage and ensure
the success of a child's CTF investment.
8. POLICY DEVELOPMENTS
8.1 Age seven and Secondary School Age Top-up
Payments by Government
We fully support these payments and have recently
responded to Government consultation. We would like the Government
to confirm these payments at the earliest opportunity so that
families are able to plan their savings with greater certainty.
8.2 Looked After Children and The Official
Solicitor
We applaud the Welsh Assembly for approving
top-up payments into the accounts of looked-after children. We
hope that those responsible for other looked-after children in
the UK will follow suit.
9. CONCLUSION
We believe that having a "financial headstart"
in life is more important for youngsters than ever before. The
CTF is proving to be the catalyst that will help ensure all children
in future have the chance to benefit in this way.
The recommendations we have made will help to
develop the policy further and remove any concerns that post-launch
experience suggests exist.
Child Trust Fund Consumer Feedback
"More than half of it you're not going
to read, from the centre pages, key features and the rest."
"It wasn't `til I started reading it that
I realised oh it's from a company, The Children's Mutual."
"The whole thing is too official; you almost
need a solicitor with you to go through the last few pages. Other
pamphlets I've seen aren't so heavy on that, there's too much."
"I read right up to the staples, thinking
this is good actually, got to the middle and thought now I need
a cup of tea."
Why reference Non-Stakeholder in this Stakeholder
product brochure? Raises concern at making decision without consulting
the equivalent literature.
Table is product and not benefits led.
Why isn't advice offered? What is advice?
You may be charged for advice—no thanks.
Absolutely no issues with understanding the
inherent risk in the Baby Bond product, one diligent respondent
counted 11 separate share value warnings
— Greater balance could be provided,
parents wanted to see graphical evidence that shares outperform
deposits—this assertion is, even now, believed, and central
to the selection of stakeholder amongst openers [researcher's
conclusion]
November 2005
1 The number of people committing to regular monthly
savings for their children. Back
| 
