Memorandum submitted by the Nationwide
Building Society
INTRODUCTION
1. Nationwide Building Society is the UK's
second largest savings provider. We have more than 150 years'
experience of helping families save, and today one in six children
in the UK who saves does so with us.
2. Nationwide offers both a cash and Stakeholder
equity Child Trust Fund, one of only four high street organisations
to offer both options.
3. Nationwide has been offering cash and
Stakeholder equity since January 2005, and to date has received
more than 200,000 applications for Child Trust Fund. Applications
are currently running at around 500 received each day. This gives
Nationwide an estimated 18% share of the Child Trust Fund market.
4. Based on current applications, our figures
show that 37% of parents choosing Child Trust Fund with Nationwide
are opting for equity funds, while the remaining 63% are choosing
cash funds.
5. The Society welcomes the Committee's
inquiry into Child Trust Funds and is pleased to submit evidence
to it.
TAKE UP
AND CONTRIBUTIONS
TO CHILD
TRUST FUND
6. It is disappointing that less than half
of the Child Trust Fund vouchers sent to parents have been cashed
so far, meaning that nearly one million Child Trust Fund vouchers
remain uninvested. Nationwide is concerned that children may be
losing out on either potential stock market growth or interest
on their account, and that further work needs to be done to understand
how parents can be encouraged to invest their vouchers.
7. It is too early to tell what proportion
of parents, families and children themselves will top up the contribution
made by the Government. Even modest additional contributions can
make a significant difference to the value of the Child Trust
Fund at maturity.
8. Our projections show that the amount
children receive when they reach their 18th birthday will vary
significantly, from around £1,000 for those who have just
the money provided by the Government, to around £9,000 for
those whose parents add £5 to the Child Trust Fund each week,
to almost £40,000 for those whose parents top up the account
by the maximum £1,200 each year.
9. Without top-ups across all socio-economic
groups, in 16 years' time when the funds begin to mature, some
children will receive a substantial windfall and others receive
relatively little. For this reason, Nationwide believes it is
vital that in addition to encouraging parents to take up Child
Trust Fund, the Government demonstrates the benefits to parents
of making additional contributions to Child Trust Funds.
10. Nationwide supports setting the additional
payments into Child Trust Funds at £250-£500 for children
on lower incomes—for both top-ups at age seven and at secondary
school age. Nationwide would like to see the second top-up payment
made at age 11, to allow the maximum time for the money invested
to grow. We would welcome a swift announcement from the Government
to confirm these amounts and the timing of these top-ups, which
we believe would prompt renewed interest in and confidence in
Child Trust Fund from parents.
11. Nationwide would like to see the Government
confirm that the amounts of initial contribution and further top-ups
will be index-linked, to avoid the value of the fund contributions
being eroded by inflation.
FINANCIAL EDUCATION
12. One of the Government's goals for CTF
was "to build on financial education to help people make
better financial choices throughout their lives". Nationwide
supports greater emphasis on the educational aspects of Child
Trust Fund, and would like to see a financial education programme
in schools linked to Child Trust Fund. We believe this would reinforce
the messages about the benefit of saving into Child Trust Fund
and help children understand and appreciate the value of the asset
they will gain at the start of their adult lives.
13. As part of this financial education
programme, Nationwide would like to see an additional top-up to
the Child Trust Fund made to children aged 13-16 who achieve agreed
financial education goals. Financial incentives to learn have
already been used with the Education Maintenance Allowance and
the Connexions scheme and Nationwide believes that there could
be benefits in using a similar approach to encourage and reward
financial education among children and young people.
SAVINGS INCENTIVES
FOR OLDER
CHILDREN
14. Only children born since 1 September
2002 qualify for the Child Trust Fund. This may mean that older
brothers and sisters have very little in savings when they reach
18 compared with their younger, CTF-qualifying siblings. Also,
the two-tier savings regime may deter parents from contributing
to a CTF if the child has an older sibling who does not qualify
as it would be unequal.
15. From the age of 16 children can open
a cash ISA with the same subscription limits as adults; however
they cannot hold equity ISAs until they reach 18. Stock market-linked
savings plans where parents can invest for children are available
through friendly societies; however the maximum investment is
£25 each month.
16. Nationwide would like to see the Government
address the distortions that allow young children to hold an equity
Child Trust Fund but prevent older children from investing in
equities before they turn 18. We believe this step towards equalising
tax treatment for children might encourage further children's
saving.
November 2005
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